Would you like to end the year without debt? Well, the first bold step you should take is getting a debt consolidation loan. With all your previous debts pooled together, you are left with one monthly loan to service. This is definitely manageable, right?
Unfortunately, you may still fall into debt’s rabbit hole and that will push you back years. To prevent any of this from happening and have no debt to service after debt consolidation, do the following:
- Pay double the minimum payment
Well, you don’t have to pay precisely double the minimum payment. However, whenever you can, pay more than is required to reduce the amount owed to the debt consolidation company. Your loan account balance will always be high when you stick to the outlined minimum payment.
Whether you are servicing a debt consolidation loan, a payday consolidation loan, a P2P consolidation loan, or a credit card consolidation loan, ensure that you reduce the balance, significantly, whenever possible.
- Pay off your most expensive debt first
Note that you will not always get a debt consolidation loan that covers all your debt at one go. As a result, you should have the most expensive debts paid off first. There may be debts not covered by debt consolidation loans, but if they are all covered, get the big and crucial ones paid off first.
By doing this, you can easily pay off the less expensive ones alongside the debt consolidation loan comfortably.
- Spend less
At first, you will have a big challenge adjusting your lifestyle to fit the new budget, but eventually, you will enjoy a debt free life. Remember that you can have almost everything you want, but you cannot afford everything you want. You may not get a pay increase because you are taking control of your finances, so learn to live with what you have. Leave your credit cards at home when out shopping and use cash instead.
A big tip to spending less and saving more is to shop at sales. Start with groceries. Households spend a big chunk of their earnings on groceries. You have to live, but you don’t necessarily have to spend so much to do it. Stock up on groceries and non-perishable groceries available at big sales. Take advantage of discounts, coupons, and clearance sales for bigger savings.
- Track your spending
Every credit counselor will ask you to do this. After taking a debt consolidation loan, you are supposed to be more conscious of how you spend your money. To do this, put things down and track every spending through the month.
Do you always find yourself wondering where the cash you had in the morning disappeared to? Tracking will get rid of such recurrent problems. You will be able to identify where money goes. This will lead to more savings and ease in repaying the loan.
- Create a budget
This is your spending plan. Before the end of a month, prepare a budget for the next month. You know how much you earn, what you owe the debt consolidation company, and how much your living expenses are. When all these are listed, you will find it easier to spend your money. Have percentages for debt repayments, saving, living expenses, insurance, entertainment etc. You probably dislike creating budgets but they are integral in financial management.
- Get a second job
Being in debt means that you have little or no disposable income. If you love the lifestyle afforded by generous spending, get a better job or a second job. This is an effective way for you to afford more in future. However, this will also serve as a means for you to pay off your debts aggressively. Within a few years, less than what is prescribed in the repayment plan, you will have repaid your loan fully and your bank account will look good.
Looking for a second job doesn’t have to be very strenuous since you can work from home part-time if you utilize your skills. You can also let your entrepreneurial spirit go wild by renting out some of the space in your home. Do you need the extra guestroom or the basement?
- Don’t take other loans
There will be the temptation to get another loan for a project or the temptation to shop with your credit card. Resist such temptations and learn to live with what you have. If you default on any of these other loans, you will be hurting your credit score further. You should therefore shake your spending.
Protect your credit score by making payment when due or before it’s due. Avoid outstanding balances because any defaulted payment pulls your credit score further down.
- Create a $1000 savings account
Though this will feel like a huge stretch, it shouldn’t be. After making adjustments to your spending, you will be in a position to save a little. Financial adjustments make saving possible. Having a buffer account is a counter offer to hitting the ceiling when relying on credit.
Here is a tip, if you are thinking of increasing your credit limit, challenge yourself by turning that around and increasing your savings to match your credit limit. This will make you more aggressive in reaching your savings target.
- Repay with what you have
Do you need everything in your house? The truth is that not everything you have bought has been used, and it might never get used. That is what led you to debt in the first place and perhaps one of the things that will get you out of debt.
Look at those items as blessings in disguise and sell them. Put up a garage or yard sale or sell off those items online. Craigslist and eBay have buyers for those items. Use the money earned to pay off a chunk of your debt.
In conclusion, a debt consolidation loan is an effective debt management solution for households. Once you have the loan set up, apply the strategies listed above. Be realistic and do all you can to lead a debt free life.