Getting into debt is a lot easier than getting out of debt, especially if you’re not too organized. Hard work and earning some cash to cover your debts is just half the work, you will have to make sure to pay on time to avoid hefty fees and additional interest. This is why debt consolidation is a must, not only it will get you out of debt faster, it will save you a significant amount of money too!
The Ins and Outs of Debt Consolidation
Having a few debts means you will have to juggle more logistically and financially. By consolidating your debts, you can benefit from a lower interest rate and will have fewer things to worry about. You can do this by taking a loan at a low interest to pay off existing debts, essentially transforming a few or many things you have to pay for into just one scheduled payment per month.
Note that you are not placing yourself into further debt by taking another loan, you are using that loan to transform your existing debts into just one that will be easier to manage and pay for in the long run. Below are some top debt consolidation tips that our experts have compiled to help you out.
Check Out Your Options
You can use a debt consolidation loan, use a home equity loan, borrow from family, consolidate across your various credit cards, take a second mortgage, or use a home equity line of credit (HELOC) for consolidating your debts.
A home equity line of credit has fewer restrictions for paying off, although it comes with higher rates compared to a typical mortgage. A home equity loan is a second mortgage loan that works short term and is designed to improve your credit rating while lowering your interest rates. A debt consolidation loan has rates that are in between credit card interest rates and typical mortgage interest rates and is a short-term interest-only loan. Consolidating across cards may come with lower interest but take note that it can come with a hefty fee. Taking a second mortgage is often difficult to get unless you have help from professional mortgage brokers. Borrowing from family can cause stress in your relationships although it does come with the lowest interest rate.
Tackle Your Highest Interest Loans First
When your debt consolidation attempts come with a quite a few limits, channeling what you can get towards the debt that will cost you the most in the long run is the smartest decision you can make.
Assess if Debt Consolidation is Indeed a Solution for You
Debt consolidation work best if you have quite a number of unsecured debts, however, if you have secured loans, it might be wiser and cheaper to stick with them until they are paid.
Plan Your Loan Actions
Aiming to eliminate all debts is a lot smarter than simply aiming for reducing your debt. However, to achieve that, you will have to have clear definable goals, assign a deadline to said goals, and keep your plan realistic; otherwise, you will find yourself getting frustrated down the road.
Be Money Savvy
Just because you’ll be saving a few thousand dollars by consolidating your debts does not mean that you can afford to spend what you can save on trivial things. If you’ve got some extra cash, better put it to good use by paying off your debt sooner. That way, you can enjoy financial freedom later.
Go for Cash
The best way to keep yourself out of further debt while you are on your way to pay off your loans is to pay in cash. This will make you more self-aware regarding your spending habits, and is proven to reduce spending by a significant percentage.
Debt consolidation is a smart financial move, but please keep in mind that it may not work for everyone. Read up on your options, or better yet, consult with debt and mortgage experts before making major financial decisions. A few minutes invested in reading facts and talking with a professional can save you from years of financial woe.