Do you think it’s a good idea to consolidate debts right now? If you remember the devastation that happened during the Great Recession, experts are saying that this time, it will be worse.
Reports reveal that we are on the brink of the worst financial crisis since 1929. Or maybe not on the brink. Maybe the crisis already started!
If this financial downturn is expected to be worse than the previous one, how do you think you can survive? It’s hard enough to live during the recession. But it becomes worse if you have a lot of debts when it happens.
So what can you do?
You need to do something about your debts before the crisis starts to affect your personal life. Fortunately for you, there are ways to pay it off. But you need to act fast. And you need to decide on the best debt solution that you can use.
If you still have a steady income and a good credit score, you might want to consolidate debts.
You may be thinking, is it safe to consolidate all your debts if there is a global crisis? Yes, it is. But you need to make sure that you can do it correctly.
First of all, you need to make sure that you have the right debts. That means you should be able to consolidate them. Most credit accounts are allowed. But some have prepayment penalties that you may have to pay.
Not only that, but there are also several ways to consolidate debts. You need to make sure that you are using the right one.
How to consolidate debts before a global crisis hits
If you want to keep your household debt situation under control during the crisis, you need to choose the right debt solution. If you think that consolidating debt is the best option, then you need to get to know the different ways that you can do it. By choosing the right strategy, you are increasing the chances of paying off your debts even while there is a global crisis.
So what are the different ways that you can safely consolidate debts despite the looming crisis?
Look for 0% balance transfers
Start with the 0% balance transfer cards. This is a really good option if you have a lot of high-interest credit cards. There are a lot of credit card companies offering this promo for at least 6 months. If you are willing to pay the balance transfer fee, you can even enjoy the 0% interest for more than a year. The fee is usually 3% of the amount you will transfer. You can waive this fee but you usually lose the 0% interest for a very low-interest rate or the promo period will be shortened. Calculate where you will save the most.
The best deal is usually when you get the 0% interest rate arrangement. And to maximize the benefits, you need to create a repayment plan that will allow you to completely pay off what you owe during this promo period. That way, you can save a lot on the interest rate.
Use your home equity
Another option that you have is to use your home equity to consolidate debts. Reports reveal that although the Fed cut the benchmark interest rate to 0%, don’t expect the mortgage rates to go down. But that’s okay. Because mortgage rates have already plummeted when the year started.
So what does that mean? Maybe it will help you save money if you opt to use a home equity loan to consolidate all your debts. You can get a very low-interest rate – especially if you have a good credit score. It will also be easier for you to manage your debts because you only have to pay your mortgage. Since it’s your home, the chances that you will forget to make a payment will be very low. As long as you don’t add to your debts, you should be able to pay off your debt without a problem.
Get a low-interest debt consolidation loan
Finally, you can opt to use a debt consolidation loan. Again, this will work well if you have a good credit score. You can consolidate debts through a low-interest loan. This is a great option if you want to deal with high-interest credit cards.
However, you have to exert caution when using this. Make sure that you will really pay it off. Unlike a home equity loan, you may not feel the pressure to pay because it is an unsecured loan. But that does not mean there will be no consequences if you fail to pay your debts. So just fulfill your responsibilities and pay back your debt as fast as you can.
How to prepare your finances while consolidating debts
While you consolidate debts, it is also important for you to make sure your finances are secure. Don’t forget that the threat here is the global crisis. Even if you get rid of your debts you still have to deal with the shaky economy. Since this is a global phenomenon, it will be harder for the national economy to recover. So you have to expect that the financial difficulties will last over a long period.
So what can you do? Here are helpful tips for you to use.
Change your spending behavior
The first, and maybe the most important, is to change your behavior. To be specific, you might want to change the way you spend. Your household expenses will play a big role in helping you survive the global crisis. If you do it correctly, you can strengthen your current financial position while you consolidate debts.
How can you change your spending behavior? Start by being a smart spender. If you don’t need it don’t buy it. Or if you can get it without spending on it, that would be better. The goal is to try to lower your spending. That way, the extra money can be used to save or pay off your debts. Anything that will strengthen your finances to survive the global crisis.
Check your emergency fund
If you can lower your spending, you have a higher chance of giving your emergency fund a boost. Since most of the people are encouraged to stay at home and not work, where will they get the money for their expenses? Help may come from their employers or the government, but this is not something that you can immediately get.
This is one example of a situation wherein emergency funds can be useful. If you think your funds are not enough, you need to give it a boost. With all the extra money you are saving by changing your spending behavior, use it to increase your emergency fund. That way, if you lose your job or if the global crisis extends over a long time, you and your family will be okay.
Secure your finances
There are many ways for you to secure your finances. First of all, take all your assets into account. When things become desperate, you might need these assets to help you survive. This includes the equity of your home and your retirement fund.
You should also look at your source of income. Do you think it’s stable? Whether you are the employer or an employee, you will be vulnerable during a global crisis.
Try to set up other sources of income. If you can get an online freelancing job, that would really help a lot. This may not pay as much as your day job, but it is definitely better than nothing.
Without a doubt, the global crisis is a scary event. But if you can strengthen your finances and consolidate debts, you have a better chance of surviving it.