Choosing the right debt consolidation strategy is like taking the right step towards debt freedom. If you use the wrong debt relief program, you might end up wasting both time and money. To be smart with your debt solution, you need to make sure that it is the perfect fit based on your specific debt and financial situation.
According to one survey, people use different methods for credit card debt relief like balance transfer, debt consolidation loans, and even family loans. Other options that are not included in the survey include credit counseling, debt management, debt settlement, etc. All of these options are effective in getting you out of debt. However, you have to realize that there is usually one specific solution that will give you the most benefits. At least, this is true for your finances.
If you want to maximize the effects of your debt consolidation strategy, you have to make sure that you know how to choose among your options. It is not enough that you know the list you are choosing from. You also have to know the specific areas in your financial life that you should consider when making a choice.
Three factors that influence your debt consolidation strategy
When you are looking for the best debt consolidation strategy, you should always do it with a complete understanding of your specific debt and financial situation. It is not enough for you to focus on the option that will help you save more. While that is a good quality in a debt relief program, it is not everything. Sometimes, you think that it will save you a lot of money. However, if you consider other factors in your life, you will realize that the debt relief program has pushed you further from improving your finances. This is possible even if you got a lot of savings. Getting out of debt may be a financial improvement, but there may be a better alternative that will give you the same result without compromising the future that you wanted to achieve for yourself.
There are three specific details about your personal finances that will influence the debt consolidation strategy that you need to use.
Basically, you need to ask yourself how much your budget can afford to pay each month. Before you immediately say that you are broke because you are living from paycheck to paycheck, take a look at your budget plan first. Focus on where your money is being spent. Are all of these necessary for you to survive? If not, then you might want to cut back on these expenses. Sometimes, you are not really broke. You are merely overspending.
Once you have analyzed your budget, you might want to see how much you can set aside for your debt payments. Make sure that when you make a new list of your expenses, you give each category realistic amounts. That way, you will not feel too restricted because you set a debt payment that is too high for what you can afford. Be honest with the expenses that you can afford so you can also be realistic with the debt payment that you can afford.
After calculating the amount you can afford for your debt, you will know the type of debt consolidation strategy you can use. Do you need a debt reduction? If yes, then opt for debt settlement. If not, a debt consolidation loan or debt management might be a better option.
Type of debts
You should also consider the type of debts that you have. One of the reasons to consolidate is to get a lower interest rate. So if you have a lot of high-interest credit card debts, it is easy to choose the right debt consolidation strategy that you should use.
However, if you mostly have a mortgage, car loans, or student loans – you might want to analyze your options carefully. Most of these debts are secured loans and that means these have low-interest rates. As for the student loans, it has a lot of repayment plans that you can use to lower both the interest rate and monthly payments. So consolidating does not really make much sense – except if you just want to simplify your monthly payments, then it would make sense. But if your goal is to improve the interest rate and terms, then you need to take a closer look at the type of debts that you owe.
Finally, you need to consider your future plans if you want to choose the right debt consolidation strategy. At the very least, you want the debt solution to improve your financial future. While having your debts paid off is an improvement in itself, you should not just settle for that. If your future includes borrowing a mortgage to buy your own house, you need to keep your credit reputation high. That means you have to make sure the debt consolidation option you will use will improve your credit score.
If you need to have a certain amount of savings, you want to choose the debt consolidation strategy that will help you achieve that goal. Setting your future right is possible as you pay off your debts. But you have to use the right debt solution to accomplish that.
Tips to make your debt consolidation strategy effective
Once you have chosen the right strategy, the effort will not stop there. You still have a long way to go if you really want to improve your financial situation while paying off your debts.
Here are some tips that you might want to look into if you want to make your debt consolidation strategy effective.
Commit to the repayment plan
First of all, whatever you have chosen should have your commitment. You need to make sure that you will see through the debt solution until the very end. Sometimes, people have a hard time committing to the debt consolidation plan because they chose the wrong one. This is why you need to be very careful with your choice.
Monitor your finances
A lot can happen from the moment you started the debt consolidation program until the day you make your last payment. Admittedly, it is possible for the debt consolidation strategy to stop being effective once certain aspects of your life changes. This includes your income, priorities, expenses, etc. You need to make sure that you are aware of these changes and how it can affect your debt relief program.
You should also be cautious about how you spend your money. According to reports, the modern-day consumers have a tendency to spend more than their means. You need to be a smarter spender so you will not waste your money on unnecessary expenses. That way, you will not be put in a financial position that could compromise your debt payments.
Stop using credit
At least, this is true while you are still in the middle of a debt consolidation strategy. Do not use credit so you will not add any more to your balance. If you keep on using credit, you will never run out of debt to pay off. Keep a tight lid on your credit use until after you have paid off your debts. Once you are debt free, you can start using credit again. However, you need to make sure that you will be making smarter choices this time.