There are various strategies that can help you pay off your consolidated debts successfully. It will really make things easier for you to meet all your monthly payments. Not only that, it will increase the chances of being successful in achieving debt freedom.
According to the latest statistics from the New York Federal Reserve, the total household debt grew significantly by $124 billion. And this is just over the period of one quarter. The same report revealed that most of these were caused by mortgage loans, car loans, and student loans. While 6 out of 10 Americans have at least one credit card account, there is an improvement in their debt balance. It is still a lot but it does not have the same growth as the other three types of debt.
One thing is for sure, if Americans have a lot of debts, they are in need of a good debt solution. As it turns out, consolidated debt can make things easier to reach freedom from debt. With the right debt consolidation strategy, consumers should be able to pay off what they owe each month without feeling too much strain in their budget.
Different strategies to pay consolidated debt successfully
Fortunately, there are a couple of strategies that will help make paying consolidated debts easier and more efficient. Here are some of the techniques you can implement.
Use a shorter repayment plan
Most people opt to consolidate their debts so they can enjoy a lower monthly payment. There is nothing wrong with this – especially if you have a tight budget. However, there are drawbacks to having a lower monthly payment. For one, it will result in a longer debt repayment timeline. Since you are paying the debt over a longer time, you will end up paying more towards the interest. So if you really want to benefit from debt consolidation, you need to opt for a shorter repayment plan. This will help you get out of debt faster and will allow you to save money since you will be paying less interest.
Set up milestones
Another strategy that you can use is to set up a milestone. This is meant to help you battle debt discouragement. While consolidated debts are easier to pay off, it does not bring debt reduction. That means you have to pay off everything that you owe – plus interest. If you cannot afford to pay more each month, it will seem like achieving debt freedom takes too long. It can make you feel discouraged. When you have milestones, this will serve as a marker of small victories. You can give yourself small rewards for reaching these milestones. When you celebrate these achievements, it will give you the motivation to try and reach the next one. Not only that, it will make the debt relief journey easier to complete.
Establish a financial goal
If you want to be successful in paying off all consolidated debts, it helps to set a financial goal. According to studies, setting goals is proven to increase motivation and commitment. This, in turn, can affect how you feel towards the debt solution. When you set goals, make sure this is something that you can achieve by becoming debt free. If you have a lot of student loans, you can set a traveling goal that will only be possible once you get rid of your debts. Or you can set a goal to buy your own house. Focusing on these goals will also motivate you to completely pay off your debts.
Live a frugal life
The final strategy that you can use is to live a frugal life. This does not mean you will restrict your spending to the point of being miserable. Being frugal means you identify the expenses that are important to you and you will focus on these expenses alone. By living a frugal lifestyle, there is a higher chance that you will have a lot of extra money. You can use this to pay for your consolidated debts. The more you can pay each month, the faster you can achieve debt freedom.
All of these strategies will either make it easier to pay off your debts or it will expedite the whole process. You can use only one or you can combine two or more strategies. For instance, you can live a frugal life and set up milestones to make the process more convenient. As long as you are focused on the task, you will soon find yourself a few payments from being completely debt free.
How to stay out of debt after paying it all off
While all these strategies to pay off debt consolidation is effective, you still have to exert effort to stay out of debt after you have paid everything off. It is not that difficult to do this – as long as you know the right tips to help you stay debt-free.
Always refer to your budget
Nowadays, living without a budget plan can be dangerous. Your financial decisions should be well-thought out. That means having a budget that will give you an overview of your income and expenses. If you have to purchase something, make sure you consult our budget to determine if you can afford it or not. This will keep you from overspending and ending up in debt.
Use credit with a purpose
Being debt-free does not mean you will not use credit. Believe it or not, it is possible to use credit without being “in debt” – at least, this is possible for credit cards. As long as you pay the full balance by the end of the month, no balance will be carried over to the next billing cycle. That will not be registered as debt. What is great about it is the fact that your use of the credit card will be reflected on your credit report. Since you paid it off immediately, it will affect your score positively.
Have an emergency fund
Finally, you need to have an emergency fund if you want to stay out of debt. Sometimes, debt is caused by an unexpected incident. If you need to rush to the emergency room or your car needs to be repaired, that can cost you money. If you are not prepared for this expense, you might end up borrowing money. As long as you have an emergency fund, you can use this money to pay for an unexpected expense. The good news is, you can save for an emergency fund while paying off consolidated debts. That is like hitting two birds with one stone.