When your debts are mounting, your first instinct may be to do something really drastic like cut up your credit cards or even put them in a jar of water and freeze them so you never have to look at them. While such extreme tactics may help in the short term, it is a good idea to, instead, work on a more comprehensive plan to repay your debts. One popular, and fairly common, strategy that can help you do this is debt consolidation.
What Is Debt Consolidation?
Debt consolidation essentially involves rolling multiple outstanding debts into a single credit card or loan. The goal is to find an option that charges you a lower rate of interest.
If you are considering debt consolidation, here are a few things to keep in mind:
Make a realistic budget: In order for debt consolidation to work, you need to first work out a clear plan. So, create a budget that allocates money toward your emergency fund, debt payments, etc. But that’s not enough – make sure to also account for infrequent expenses and vacations so you know how much you can pay for your debt consolidation loan.
Stop using your credit cards: If you are trying to consolidate your debts and pay off a new large loan, it is vital that you stop using your credit cards. Keep in mind that any new expenses you charge toward your credit cards could make it that much harder for you to get out of debt. One way to avoid using your credit cards is by only carrying cash when you step out.
Compare debt consolidation products: Don’t assume that all debt consolidation products work equally well. For instance, people who have several smaller debts may benefit more from a 0% balance transfer credit card as opposed to a large personal loan. Make sure to compare the options available to you and pick the one that makes the most sense.
Ask for support: Tackling debt or your spending problem may seem shameful, but it is vital. Fortunately, there are a number of support groups, both online and offline, that motivate people to reach their financial goals.
