Debt consolidation is an excellent financial strategy that includes merging multiple debts into a manageable payment plan. Simply put, this means taking out a new loan, often higher than your other loans, and paying your existing debts. You will only have one creditor to deal with, making it easy for you to find your financial footing. Unfortunately, without proper planning, taking from Peter and paying Paul can increase your risk of having more debt.
As a result, it can affect your credit score; you could lose your collateral or pay more in fees and interest over the debt’s lifespan. This guide gives you three proven tips to help you properly consolidate your debts.
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3 Ways on How to Consolidate Debt ( and Make Sure It Doesn’t Recur)
Debt consolidation should be an option for those who find dealing with different creditors hectic. Small steps like using online loan platforms like Symple Lending or corporations in the same category as Symple Lending can make a difference regarding debt consolidation.
If unsure how to successfully navigate consolidating debts, use the following tips. Also, these tips will help avoid the recurring cycle of debt in your financial life.
1. Understand Your Monthly Payable Debt
First things first, add all your debts before applying for debt consolidation through a personal lender or any loan platform to understand how much money you need. For example, if you have three creditors, where you owe creditor A $500, creditor B $1500, and creditor C $1000, your total debt is $2500.
It would be a wrong financial move to ask for $2000 or $3500. Remember, this is also a loan you’re taking. The payments can be fixed or paid in monthly installments, including the interest. Ensure your monthly budget accommodates your new expense, as a poor understanding of your total debt can result in you floating your credit card–again.
2. Choose a Loan That Directly Deals With Your Creditors
Here is a well-kept secret regarding debt management–keep it simple. Usually, when you apply for a personal loan, the funds are deposited into your bank account, where you can use them as intended.
However, with debt consolidation, the lenders can pay your creditors directly. If so, it cuts out a lot of stress, like dealing with individual creditors. You only need to provide your debt consolidation lender with all the necessary information about your creditors, including the exact debt amount.
3. Don’t Add to Your Debts
After successfully consolidating your debts, it’s more likely that you will feel better and less stressed. This relief is because your payments are now more manageable. During this period, it’s easy to feel tempted to start racking charges on your credit card.
Don’t do that. Avoid the temptation, like how Joseph ran away from Potiphar’s wife. Otherwise, you will create a new source of debt and stress. However, don’t close your credit cards, as it can lower your total available credit. If you must use your credit card, treat it like a debit card, where you only make charges you can pay using the money in your bank account.
Having debt from different sources can surely do you more harm than good, but with debt consolidation, you can deal with only one creditor. The trick is staying away from debt and repaying your current to avoid a vicious cycle. With proper planning and having a structure, you can successfully clear your debt and escape the ‘matrix.’