How can you achieve a successful debt consolidation of all your credit card balances? Don’t worry, there are various tips that will make this task easier. It doesn’t matter if you have multiple credit cards or if you have a huge balance. What matters is you start aggressively paying it all off.
But what is the status of the credit card debt of Americans? Apparently, the average credit card debt of Americans has reached $6,194 each. Considering everything that’s happening to us right now, it’s a must for you to improve your finances. We don’t know what will happen after the coronavirus pandemic and the recession wreak havoc in the finances of the average household. But we do know that we need to do whatever we can to strengthen our finances.
Part of what you have to do is deal with your debts. To be specific, you have to focus on your credit cards. These have very high-interest rates. The longer it takes for you to pay it off the more interest you’ll end up paying. Not only that, the convenience of using these cards will make it very tempting. Even if you know what is at stake, you‘ll still keep on using it.
Without a doubt, handling credit card debt should be done with care. But more than that, you have to know the best debt solution that will help you get rid of your current balance.
While there are a lot of options to deal with your credit card debts, what you really need is a successful debt consolidation program.
Tips to have a successful debt consolidation
Debt consolidation involves combining multiple credit accounts in one credit account to simplify your monthly payments. Usually, this account is a new one. You’ll open it with the intention of using the funds to pay off your original debts. You’ll still have the same amount of debt. But this time, it’ll be under one lender or creditor.
With your debts consolidated, it should be easier for you to manage your monthly payments. Without the added stress of having to monitor so many accounts and due dates at the same time, you can now focus. What will you focus on? The most important task that you have to do – earn the money that will fund your debt payments.
Of course, consolidating the debt is only the first step. You have to make sure you can meet all the payments. It’s still a long road towards complete debt freedom.
How can you succeed in using debt consolidation to get rid of your credit card debts? Here are tips that you can use.
Have a realistic budget plan
It’s not enough to use a budget plan to make a debt consolidation loan. It has to be realistic. If it’s not realistic, there’s a high chance that you won’t be able to follow it. If you can’t follow it, then the budget would be for nothing.
This is why the budgeting strategy that you will use should be considered carefully. Make sure that it’s aligned with your debt consolidation plans and your current financial situation. Check all your expenses and see if there are expenses that you can let go of. Maybe you can use the money to add to your monthly debt payments.
Once you have updated your budget plan, use it as a guide. Everything that’s listed as the priority should be funded no matter what. This is how you can be sure that every amount that you earn will go to your intended expenses.
Stop using your credit cards
To have a successful debt consolidation plan, you should put a stop to the use of more debt. Otherwise, it will be a never-ending debt payment for you. And if you’re not careful, you might end up making things worse.
Think about it. When you consolidate debts, you’ll be taking your high-interest credit card balance and putting it in a loan that has a lower interest rate. Thanks to the interest rate, you’ll be saving money on the payments already. But after that, your credit cards will have a zero balance.
So what’s wrong with that?
It could be very tempting to use your cards again. You haven’t closed the credit card account so technically, you’re still allowed to use it. And seeing the zero balance will put you in a false sense of debt freedom. When in truth, you still owe the same amount of money.
So to ensure that you won’t make things worse by mistake, just don’t use credit for now. At least, until you have paid off a significant amount of your balance.
But even if you’ve paid off your debts, make sure you are still cautious with how you use credit so you’ll never land in the same situation again.
Get to know your program
The third thing that you have to do to ensure a successful debt consolidation effort is to get to know the program you used. There are many options to consolidate your debts.
You can use a debt consolidation loan. You’ll borrow a low-interest loan that you can use to pay off your high-interest credit cards. Or you can use a balance transfer card. These cards are usually offered with a 0% or very low-interest rate over a pre-determined period. If you agree to pay a balance transfer fee, the promo rate can even extend up to a couple of years. You can take advantage of paying without any interest.
Another option is a home equity loan. You can use the equity that you have on your house to pay for your debts. Since this is a secured loan, the interest rate will be very low. But you have to be really careful with this option because if you fail to pay it off, you’ll lose your house in the process.
Whatever option you use to consolidate your debts, make sure you understand the process completely. That way, you can maximize the benefits of that debt solution.
Commit to the debt solution
Finally, if you have chosen the debt solution that you’ll use, make sure you commit to it. Sometimes, this is where a lot of people struggle with.
You see, there’s no such thing as overnight debt relief. Even bankruptcy takes months to complete. So if you want to achieve debt freedom, you have to commit to your chosen debt solution. From start to finish – commit to meeting every payment obligation on time. Don’t focus on the huge debt that you have to pay off. Just take it one step at a time. Focus on making one payment now and then on to the next.
Debt consolidation made your monthly payments easier by combining them under one account. You just have to stick to it.
Benefits of using debt consolidation
You must be wondering, why should you aim for successful debt consolidation when there are other options that’ll get you to debt freedom?
The truth is, you have to choose the debt solution that fits your specific debt and financial situation. But there are times when you will qualify for more than one debt relief program. Why then should you choose to use debt consolidation?
There are two benefits you’ll gain after setting up a successful debt consolidation.
Lower interest rate
This is probably the most important benefit of using debt consolidation. Why? Because the average interest rate of credit cards is very high. The Federal Reserve revealed that the average APR for credit cards is currently at 14.52%. If you can’t lower this, the finance charge of your card will keep on making your balance grow.
So it’s really a good idea to do something about the interest rate of your credit card debts – especially if this is the only type of debt that you owe.
Fixed monthly payments
Another benefit of aiming for successful debt consolidation of your credit cards is to have fixed monthly payments. When you stick to your credit card payments, you’ll be paying different amounts each month. At least, if you follow the minimum payment requirement. This is because it is based on your current balance. As you pay, your balance changes and your monthly bills will too.
That can be confusing for your budget. But if you use a loan – like a debt consolidation loan, you’ll be given a fixed monthly payment. It’ll be easier to plot that in your budget plan. You’ll know how much you have to set aside each month so your debt payments are secure.