One of the goals of debt consolidation is to help improve personal finances. You have to understand, though, that it is not because of the debt relief program itself. It is more of the habits that you will learn as you pay off your debts.
The truth is, paying off your debts is not an easy thing to do. And if you use debt consolidation to get out of debt, you will not be getting any debt reduction. That means you have to pay back every single cent that you owe. This can be quite stressful and you might find it to be one of the most challenging things that you can do.
This is the reason why you need to make sure that you will end up with an improved financial future after all your efforts to get out of debt. If you have to work hard for it, you want to ensure that you can maximize the positive effects of this debt solution.
The only way to do that is to implement certain habits that will help improve personal finances after you consolidate your debts.
Life after debt consolidation is not exactly debt freedom
Let us get one thing straight. When we say after consolidating debt, this does not mean you are already debt free. There are two things that you need to remember after you have consolidated your multiple debts.
You still have to pay off your debts
Debt consolidation is a debt repayment tool. It helps you get better terms on your loan. It can be in the form of lower interest rates or lower monthly payments. The bottom line is, it will only restructure your debts. You still owe the same amount of money. More importantly, you still have to pay it all off.
Sometimes, people get a false sense of debt freedom after consolidating debts. After all, their original debts have been paid off. But you should never forget that the payment used is also debt. Now you have to pay off that new debt.
You still have to identify why you got into debt
Another truth that you have to remember is identifying what got you into debt in the first place. If you really want to improve personal finances, you need to identify what this is. Failing to do so might end up landing you in the same financial situation again.
There are man reasons why someone is in debt. Maybe you are overspending and you did not know it. Having a budget plan can solve this. Or maybe you do not have sufficient emergency funds. That means when something unexpected happens, you will be forced to borrow money in order to get past it. Once you solve the real cause of your debt situation, it will be easier for you to improve personal finances and stay out of debt.
Implement these habits to improve your personal finances
So what are the things that you need to do in order to improve your financial situation after consolidating your debts?
Assess your current financial situation
Start by assessing your financial situation. At this point, you just consolidated your debts. As explained, this does not mean you are already free from debt. You still have a long way to go when it comes to completely achieving debt freedom. With this in mind, you need to check your current budget plan. Make sure that it is aligned with the new repayment plan that you have. This will ensure that your monthly payments will be funded. Make it a priority.
Live below your means
After scrutinizing your budget plan, it is time to make a commitment to live below your means. This is also the perfect time to look at your income and expenses. See how much of your earnings go to your bills, debts, and even entertainment expenses. Maybe you can cut back on some of your expenses. According to a recent survey, Americans spend an average of $5,339 on nonessentials. This means it is not necessary for you to survive. If you have a lot of these, you might want to cut back on it. Use the money on something that can improve personal finances instead. You can also check if you can earn more. These will allow you to increase your extra money to pay more towards your debts. Not only that, but it will also give you want you to need to reach other financial goals simultaneously.
Boost your emergency fund
We mentioned that a lack of emergency funds can be a reason to land in debt. If you want to stay out of debt, you need to start saving for an emergency fund. This will ensure that if something unexpected happens, you will not be forced to borrow money. Whether it is an accident, a trip to the ER or a busted transmission, an emergency fund will help pay for these expenses without debt. This fund will also help you be more financially secure. Despite the fact that you are still in debt, this will help lower the stress that comes with paying back any money that you owe.
Commit to saving 5% of your income
The last habit that you need to implement in your life is consistently is saving a part of your income. Based on reports, there is a general increase in savings across all income levels. It seems like people are starting to understand the value of saving more.
What you have to realize is that the amount you save does not have to be a big amount. As long as you are putting away an amount in your savings every month, that will eventually grow. If you consistently save even $100 each week, that will be $400 at the end of the month. In one year, it will be $4,800. If you keep doing this for three years, you will soon have $14,400. This should be enough to help secure your financial future.
With a functional budget plan, smarter spending habits, adequate emergency funds, and increasing savings, it should be easy to improve personal finances. Combine that with your debt freedom and you will find yourself in a stronger and more positive financial position.