First of all, you need to understand how debt consolidation works. It is a method that takes all your debts and combines them all into one. You can consolidate all your debts by securing a home equity loan, a personal loan, or a balance transfer. Whatever method is best for you, be sure you do the following things for it to be a long-lasting solution to your debts. These ideas are courtesy of Forbes.com:
- Do not use your credit cards: You should destroy your cards or not use them (if you have willpower). If you continue to carry your cards on you and use them, you are bound to find yourself in the same situation again. It is also a great idea to remove your credit card information from online shopping sites. eBay and Amazon purchases can add up quickly, so it is better to remove your personal financial information.
- Try to determine what got you into debt in the first place. Did you have medical issues that caused your credit card balances to increase? Did you have a personal trauma like a divorce/separation, the birth of a new child, or even an unexpected death? These are all the reasons that happen in life. But, if you are using your available credit for a vacation, to purchase an expensive item, you need to realize that you may be paying for these purchases for years after the initial purchase.
- Look into the different options to reduce your debt so you can make a smart financial decision that will help you pay off credit cards as soon as possible.
Ask Yourself These Questions:
If you are considering debt consolidation, before you consolidate your debt:
- Do you have a credit score and income that will qualify you for a personal loan?
- What type of interest rate can you get on a consolidated loan? To make sense the interest rate should be lower than what you are paying on credit cards.
- What will your monthly payment be with a consolidation loan and can you afford the new monthly payment?
Change Your Spending Habits:
Those considering debt consolidation should do their due diligence to make sure you are getting the best deal. Symple Lending, National Debt Relief, Upstart, and Lending Tree, are well-respected lenders you may want to consider.
Here are some tips from Yahoo Finance, that may help guide you to better financial health:
- Create a budget, either weekly or monthly, and stick to it.
- Know when each debt is due and pay them on time.
- Lower your debt to income percentage.
- Start a savings account and contribute to it every month.
- Upgrade your purchase activity and spend more wisely.
CEO of Symple Lending, Houston Fraley, also stresses the importance of having an emergency fund for those unplanned expenses that can pop up at the worst time. This will help you pay cash for unexpected expenses, so you don’t have to add them to your credit card balance.
