Paying off consolidated debts is not that easy. But with hard work, determination, and a lot of self-control, you should be able to do it.
If you used a debt consolidation strategy to pay off your debts, you are already headed in the right direction. According to reports, almost half of Americans who paid off their debts have done it by using a repayment plan. This is proof that when you have a structured payment plan for all your credit obligations, there is a higher chance of completely paying it off.
One of the most effective ways to get out of debt is through a consolidation strategy. This debt relief option combines your multiple debts under one credit account. Most of the time, this is a new account. That means you can change the interest rate and get better terms on the loan. While you will still owe the same amount of money after consolidating debts, it will be easier to pay it off. It is not just because you got better terms or interest rates. It is also because you now have only one credit account to worry about. Instead of keeping track of multiple debts and due dates, you just have to focus on one payment each month.
5 improvements after paying off consolidated debts
Of course, that does not mean debt consolidation does not come with a couple of challenges. There is danger in the simplicity that this debt relief strategy can bring. It can lull you into a false sense of debt freedom. After all, things seem easier now. Maybe your debt was not that bad, to begin with?
This is the mentality that keeps Americans stuck in a never-ending struggle with debt. When things become a little bit bearable, they start to accumulate debt once more.
You need to convince yourself that life is so much better after paying off consolidated debts. Here are a few of the improvements that you will enjoy.
You have more options in life
Anyone who had been in debt can attest to the fact that it can bring a lot of restrictions to your life. Instead of using the money on something else, you have to send it to your creditors and lenders as payment. Not only that, the debt payment obligation will force you to stay with your job even if you no longer like working there. You cannot risk transferring to a new job because it might compromise your income. It is hard to take on risks like starting a new business because you need your income to be stable enough to sustain your debt payments. You have to let opportunities by because of this. But once you having completed paying off consolidated debts, this is no longer a problem. You have more freedom to take risks and to spend your money the way you really want to.
You can start new financial goals
Since you now have extra money, you are free to start new financial goals. If you want to buy a new house, you have the resources to save up for it. If you want to buy a more fuel-efficient vehicle, you can now afford to buy one to lower your monthly expenses. In case you want to go back to school to improve your skills and qualify for higher compensation, that is now possible. The same is true for starting a new business. All of the goals that you set aside can now see the light of day. There is no need to set them aside because you now have the funds to get started on them.
You can focus on your future
As you work on your other goals, it is also easier for you to focus on what you want to happen to your future. After all, these are what your goals will do for you. It will help you improve your financial future. When you have debts, you are always being pulled back. After all, your current finances are tied to your past expenses. Paying off consolidated debts will free you from that. Debt freedom will give you the finances you need to make sure that your future self will have a better life.
One of the things that you can start working on is your retirement fund. This is the most common way to secure your future. Use the extra money in your budget to increase your retirement contributions. The more you contribute, the more secure your future will be.
Your credit score will be better
With a zero balance, you will notice that your credit score will improve. The credit utilization rate has a huge effect on your credit score. This is the rate that measures your credit balance against your credit limit. It is not as much as your payment behavior but it is still significant enough to make a difference.
When you have a good credit score, things will really open up for you. There will be better opportunities because creditors and lenders will know that you are responsible when it comes to using credit.
Of course, the high credit score will not last if you stop using credit. That means you need to continue using credit but make sure you can pay it back properly. Do not let it accumulate any more. Use your credit card every now and then for small purchases. But this time, make sure to pay the balance in full when the billing statement comes.
You have less stress in life
Paying off consolidated debts will also give you less stress in your life. Reports reveal that 68% of Millennials with credit card debts feel stressed about it. If your income is hardly enough to cover for your expenses, much less your debt payments, then things can quickly turn for the worse. It can lead to sleepless nights – especially if it reached a point where creditors or collectors have started calling you.
If you have debts, you need to choose a debt consolidation strategy that will make things easier to pay off. Once you have the repayment plan in place, you will feel more in control of your debt situation. It will lessen the stress that you feel. After you have paid off the consolidated debts, you will feel a lot lighter and more hopeful for the future.
How to maintain debt freedom after consolidating debts
Paying off consolidated debts is a good thing. However, it still takes work to maintain it. You need to continue to make better decisions about your finances so you will not land in the same debt situation again.
Here are tips that can help you with this.
Live on a budget
Start by getting used to living on a budget. This does not mean you will restrict yourself. Your budget plan will actually do the opposite. It will list how much money comes in and where it should be spent on. Your budget plan will ensure that the money will go to where you intend it to. It will guide your expenses to make sure that priority expenses will always be met and that you will never overspend.
Use debt with a purpose
As mentioned, if you want to maintain a good credit score, you need to keep on using debt. But this time, you have to make sure that you know how to manage it. Because of the way our society is built, we need to keep using credit. But that is not so bad as long as you use debt with a purpose. Do not use it to meet impulsive buying sprees. If it is used with a purpose, that means it is planned. When it is planned, you usually have a repayment plan in place. That is how you can be smart with the use of credit.
Always have a goal
Finally, it is wise to always have a goal. It will help you make the right decisions especially when it comes to spending. It will make you think twice about spending on unnecessary expenses. You know that you have the option to put that money on your financial targets. For instance, instead of going on an expensive vacation, you can opt to go on a cheaper one so you can save for retirement. You will be forced to be cautious with spending because you will be prioritizing your financial goals. Without the goals, there will be nothing stopping you from being reckless with your spending.