Dealing with bills every month can be very much like waging a war against weeds. Every time you think that you have them under control, another one sprouts up somewhere and ruins your plans. So, what do you do when your personal finances can no longer stretch to cover all your expenses? Stop going out to eat? Give up your monthly entertainment subscription fees? Ice your credit cards?
Before taking drastic measures, ask yourself this question. Wouldn’t it be much easier if you could somehow roll up all your debt into a single fee? If so, you may want to consider what millions of consumers like yourself are doing, and looking into debt consolidation.
Debt consolidation basically involves merging multiple debts into a single loan or credit card at a significantly lower interest rate that what you would pay collectively for all your scattered loans. Another beneficial aspect of debt consolidation is that it makes dealing with your debts much more manageable, since you don’t need to keep track of several different repayment dates and making sure you have the money to cover each one.
That’s not so say that debt consolidation is a catch-all solution that will always get you out of financial trouble. It is a long process that will require some commitment from you to ensure that it works properly. Here are a few tips that will guarantee your plan to become debt-free is successful.
Make a realistic budget
For debt consolidation to work effectively, you need to have a clear plan of action. It’s not enough to simply calculate how much you can afford to set aside for repayment after deducting food expenses, contributions to a retirement or health insurance plan and maybe an emergency fund. A savvy budget will also account for infrequent expenses like car registration fees and times where expenses tend to run higher, for example around the holiday periods.
Make sure to account for leisure and fun
Working towards getting rid of your debts does not mean living like a hermit and not having fun. Most people who try this tend to feel like they deserve to be pampered after a while and end up splurging. Acting this way is counterproductive, since your ‘splurge’ ends up costing you way more than you expect or can manage. Instead, account for the things you love. If you enjoy watching VOD, get that Netflix premium subscription, but maybe give up on the Amazon Prime and Hulu Plus. If you enjoy going out for a drink every weekend, limit it to every other weekend instead.
Don’t let your plans for becoming debt free get in the way of you living your best life within your means.
Quit using your cards
A cardinal rule of consolidation is not using your credit cards as you pay off debt. Giving how ingrained credit cards are to our everyday consumer habits, people have turned to very drastic measures, including cutting up cards or freezing them in blocks of ice, to ensure that they don’t get tempted. If these ‘commitment devices’ work for you, by all means use them, but we would recommend keeping one around in case of dire emergencies. Another way to stay committed is to write down the reasons why you want to remain debt-free and how often you will make payments, then setting periodic reminders that track how well you’re doing.
Not using credit cards does not mean closing down your accounts as this can negatively impact your credit rating in the long run. Financial experts also advice making a nominal charge on your card every few months – which you should pay on time and in full – to keep the account active and your credit intact. We live in a credit-based environment, so it makes sense to ensure you have a good credit history to guarantee easier loan applications in the future.
Get support for your goal
Debt may feel like a shameful topic, but peer support is a powerful motivator and can hold people accountable. There are plenty of support groups online that can help keep you on track, or you can simply confide in trusted friends and family.
We hope this article will prove useful to your goal of ridding yourself of debt in the near future. For more in-depth advice, we recommend speaking to the financial experts over at Grange Finance Pty Ltd today.
