Consolidating debts does not mean you should forget about your other financial goals. The truth is, this debt relief strategy makes it easier to take care of other financial obligations. At least, if you choose the right debt consolidation option.
Sometimes, we are too focused on paying off debt that we do not realize that we have the capabilities to work on our other goals at the same time. And it is unfortunate because there are some goals that you need to start as soon as possible. The earlier you begin, the better it will be for your financial future.
One survey revealed that 39% of respondents are worried about their ability to save for long-term goals. This includes saving for retirement. The same survey revealed the top two reasons why the respondents cannot save money. The first is because they feel like they do not have enough income to meet their financial obligations and save at the same time. The other reason is the debts that they have to pay – thus making it harder to find the funds to start working on other targets.
While it is admittedly going to be harder, it is possible for you to start on your financial goals despite the fact that you are consolidating your debts.
Different financial goals to pursue despite debt consolidation
So what are the different goals that you can work on while you are in the midst of a debt consolidation program?
Here are the most important financial goals that you can focus on.
Planning for retirement
This is probably the most important – at least if you will consider the compound interest that will be added to your funds. When you start saving for retirement early, even if it is a small amount, it has more potential to grow because of the compound interest. That means the interest that is added to the current balance grows over time. It is calculated based on a set interest rate, principal amount, and the compound period (e.g. the number of years the money is saved). The earlier you start to save and the longer it takes for you to withdraw your savings, the more your money grows. This is how a small yet steady contribution will grow significantly. If you can set a lower monthly payment on your debt consolidation program, it will give you room in your budget to save for retirement – even if it is a small amount.
Saving for a downpayment of a house
This is one of the financial goals that a lot of people have had to delay because of debt. There are so many ways that debt affects this goal. First of all, it can influence your ability to borrow a mortgage. It will not necessarily lead to disapproval. However, it can affect the interest rate that will come with the home loan. Not only that, your current debt can affect your ability to save up for a down payment. While there are options that will allow you to buy a home even without one, meeting the required down payment will help you save money in the long run.
According to reports, the median down payment in 2017 was between 5% to 10%. While this may be acceptable, it will make you pay more because you will be required to get a PMI (private mortgage insurance). You will also be forced to borrow more money – thus increasing the interest amount that you have to pay on the loan.
If you want to become a homeowner without having to spend more than you have to, you need to prepare at least 20% of the purchase price as your down payment. This will help immediately increase the equity of your future home. Since a house will cost a lot, that 20% will still be a huge amount. This is why you may have to spend a lot of time to save up for it. If you can work on this while consolidating debts, it would expedite your dreams of becoming a young homeowner.
Establishing your career
Some people do not really consider this as one of their financial goals. But since it affects your source of income, it can be an important goal that will help improve your financial position. The more you earn and the more secure it is, the better it will be for your options. It will make you feel more confident about your finances.
But how does your debt affect your ability to establish a secure career? First of all, debt can make you feel stressed. With a stressed mind, it will be harder for you to concentrate and do well in your job. Another way it can affect you is your ability to start your own business – at least, if that is what you want to pursue. You will not be able to provide the capital that will help you start the business.
However, if you are currently working on your debts through debt consolidation, these issues will no longer be a problem. The simplified repayment plan will allow you to focus on your job. And if you want to save up for the startup fund of a new business, the chances of succeeding becomes higher with every debt payment you make.
Learning better financial habits
Among the financial goals, this will not directly increase your personal finances. However, it will give you what you need to make the right decisions about your finances. In effect, it will help improve your financial position. And with debt consolidation, you can actually learn a couple of things about how to manage your finances. It will help you be cautious about how you spend your money. This will also force you to use a budget plan to organize your payments. Consolidating debts will also enlighten you about how easier it is to have less debt to pay for. Hopefully, this will influence your decisions in borrowing money. With these habits developed, it is possible for you to build a better financial future.
How debt consolidation can help your financial goals
There are 3 ways that debt consolidation can help support your financial goals.
You get a new plan with better terms
First of all, debt consolidation usually involves opening a new credit account that will allow you to have a new repayment plan. This new plan will help your budget accommodate your financial goals without compromising your debt payments. For instance, you can get a lower monthly payment so you can start making small contributions towards your retirement fund. You can also get a lower interest rate or have the penalties and fees waived so it will help you save money on the overall debt payments.
You will feel less stressed since it is now affordable
Since the repayment plan is created to compliment your budget and financial goals, you do not have to stress too much about affordability. This is one of the best benefits of debt consolidation. It will help you sleep better at night because your debts are organized and your payments are not putting too much strain on your budget. You will feel more secure because you know that you can afford to pay your dues.
You will end up with a single monthly payment
The consolidated debts will also make things easier to track – thus allowing you to focus on other financial goals. Sometimes, having multiple debts makes the situation a lot worse than it seems. But when it is combined into one payment each month, it is easier for you to cope. It gives you the ability to make sure you are also contributing to your financial goals. You can take on more work because you are secure in your ability to complete the debt relief program.