Debt consolidation can help you avoid bankruptcy. At least, if you know how to use it properly. Some people would think that consolidating debts may not be enough to help you avoid this drastic financial dilemma. After all, nobody will file for bankruptcy unless their financial situation is really bad.
But you should not underestimate how consolidating debts can improve your finances. If you do it correctly, it will really bring you a lot of benefits.
The truth is, bankruptcy filings have been going down steadily since 2015. This does not mean people are no longer using debt as much as they used to. In fact, debt seems to have reached the same level as before the Recession happened. So the decline in bankruptcy filings is an indication that people have learned how to manage their finances well.
They probably used a debt solution to help them get out of debt. One of the effective ways that you can help avoid bankruptcy is by using a debt consolidation strategy.
How can debt consolidation help avoid bankruptcy
Securing your financial future will be harder if you push through with bankruptcy. This is why you need to try and avoid it at all costs.
Fortunately, debt consolidation is an effective way to manage your finances so you can avoid bankruptcy. Here are three ways that debt consolidation can help.
It makes you take your debt situation seriously
All debt relief solutions will be like your wake up call. Sometimes, taking your debts seriously is the first step towards debt freedom. The moment you realize that you can no longer afford to pay your debts through the original terms is an indication that there is a problem. This will make you take your debt situation seriously. It is no longer just a bill that you have to pay.
That is not the only reason why you will be forced to take your debts seriously. Any debt consolidation strategy will make you look at your debt situation. After all, how will you know what debts to consolidate if you will not look at each one? You need to confirm if the terms will allow you to consolidate them. Some debts have pre-payment penalties. You need to calculate if it will save you more money to just pay this penalty off and consolidate your debts.
It makes you ponder on what caused your debts
Another reason why debt consolidation can help you avoid bankruptcy is by making you look at the source of your debt problem. Since you are already looking at your debts one by one, it is easier to remember what you did wrong. Was it because you borrowed too much? Or maybe there was just a medical emergency that you were not prepared for?
According to reports, 66.5% of bankruptcies were caused by medical expenses. This is around 530,000 families that cannot avoid bankruptcy because of high health care costs. Other causes included overspending, financial aid to family and friends, student loans, and divorce.
By taking a look at what caused your debts, you are permanently fixing your financial situation. If it was your medical debt, you can save up for an emergency fund. That way, when you find yourself in another medical emergency, you have your savings to rely on. It will keep you from having to borrow money. If the problem is overspending, then obviously, you need to fix how you spend your money. It is very important to know what caused your debts because it will help you stay out of debt.
It makes you seek the help of a professional
At least, this depends on the type of debt consolidation strategy you will use. There are consolidation options that involve a professional. One option is using the services of a credit counselor. This debt expert will help you create a repayment plan that will make it easier to meet your monthly obligations. But that is not all that you can get from them.
These professionals will also explain to you what went wrong with your finances. They will help you avoid bankruptcy by helping you fix what you know about your finances. Not only that, if you are too busy to fix your finances, they can also act on your behalf.
Things you learn from debt consolidation to avoid bankruptcy
When used properly, debt consolidation can really help you avoid bankruptcy. However, that is not all that you can get out of it. More than the debt freedom, you will also learn how to avoid damaging your finances again. That is probably just as important as getting out of debt.
Here are the financial lessons that you can learn through debt consolidation. If you apply these in your life, you will find it easier to avoid bankruptcy.
Managing your finances properly
The first lesson that you will get from consolidating debts is how to manage your finances well. At least, if you want to consolidate debt properly, you need to budget your money. This is the most basic thing that you can do. It will give you an overview of your income and the various expenses that you spend on. Through your budget, you can decide if there are expenses that you should stop spending on. You can also determine how you got into debt in the first place. It will help you make the changes that are needed to help you avoid bankruptcy in the future. If you need to save up for an emergency or stop yourself from overspending, this is the best tool to help you do that.
Using debt wisely
Another thing that you will learn from consolidating debts is how to use it wisely. We cannot really stop using debt. The use of credit cards is really convenient and will open a lot of financial possibilities. It can also help improve your credit score. You just have to learn how to use it with a purpose. Do not use it for emergencies or for impulse spending. It has to be a part of your budget.
When you learn to use debt wisely, you will not have to worry about bankruptcy. It will never be a threat to you in the future.