Debt Consolidation Survival Tips
Debt consolidation is a better option than having a tarnished credit record that will may limit your financial options and opportunities in the future. By placing all your debts under one loan with a lower interest rate, you can get persistent creditors off your back. However, debt consolidation would still require you to commit to a payment plan to help you get out of debt. Hopefully, these survival tips will help you not only get through the ordeal of consolidation/repayment but also help you develop the right habits andself-discipline that can lead to a better future for your personal finances.
Take a closer look at your debt consolidation plan.
Even with lower interest rates, longer payment periods mean a higher amount of interest over the long haul. Debt consolidation plans normally reduce your interest rates by rolling the various loans into one package with one unified lower interest rate. The drawback is that you have a longer time to pay off your loan. This translates to actually a larger total interest amount since the “lower” rate is paid over an extended amount of time. Make sure you are aware of this. You are not getting something for nothing. There will still be interest paid and it will be substantial. You are not getting a “get out of debt” card.
Check not only the interest rate but also the terms, which affect the total cost of loan. Interest rates are not the only costs for loans. There may also be fees and conditional fees that kick in a certain time frames of the loan. Make sure you’re aware of all fees and what triggers them/when they occur. If the fees and interest pile up to such a point that they offset or exceed the benefits of the consolidations’ lower interest rate, be prepared to walk away from the deal. You’re probably better off looking for another consolidation plan.
Consider your debt load and financial situation now and in the future to choose the best loan. Debt consolidation programs’ extended repayment period sometimes become a trap for people that end up piling up new debt at a future date. The most common examples of this dillemma involve: buying a new house, replacing your car with a newer model, having children, starting a business, going back to school, a child going to college or coming down with a serious illness or similar unexpected and costly surprises. Make sure you look at your 3 year, 5 year, and 10 year time horizon and identify possible issues that might impact your prospective debt consolidation repayment plan.
Have a definite timeline for your debt consolidation payments. Just because you get a new lease on your financial life with a debt consolidation doesn’t mean you have to drag it out forever. The consolidations are still loans–meaning you’re going to pay it eventually. Debt consolidation is not debt avoidance. Use these tips to meet your debt payment timeline:
Stick to a payment schedule. Now that your payments are lower and you have more time to pay off your debts, make sure you stay disciplined and focused on timely payment. Whatever advantages you get by consolidating your debt will be lost if you are not disciplined in your payment schedule.
Track your expenses and make the right adjustments to your spending habits. Lower interest payments and longer time horizon to pay does not mean you can continue with your current spending habits. Use the opportunity provided by debt consolidation’s lower payments and longer payment time to establish a new sense of fiscal self-discipline. Learn to live below your means so you can pay off your loans faster and, more importantly, avoid getting into further debt in the future.
Set priorities to ultimately get out of debt. Use your debt consolidation’s lower interest rate and extended repayment period to your advantage. Use the “breathing space” you get from consolidation to make plans to get out of debt. This can involve starting up a business, getting another job, or any other activity aimed at increasing income or lowering costs. Regardless, such activities should be focused on reducing and eliminating your debt. Also, you should focus your priorities on getting rid of unnecessary expenses and prioritizing debt service.
Consider the benefits of debt consolidation relief over bankruptcy
There’s no doubt that consolidation offers many advantages than your other alternative–bankruptcy. These advantages apply now and also impact your future.
-Debt consolidation won’t tarnish your credit record, unlike bankruptcy that stays on record for years. Bankruptcy, regardless of increasing social acceptance, still carries a negative social stigma. While it is no longer considered extremely shameful, a bankruptcy on your record still gets negative attention. Moreover, bankruptcies need to be reported when you’re applying for certain types of jobs or if you’re trying to get clearances for certain types of goivernment positions. Many legal forms or government forms also require the voluntary disclosure of bankruptcy filings.
-Debt consolidation helps you pay off your debt (with lower interest rates) without losing any property through liquidation of assets. Bankruptcy often involve the liquidation of all your assets (outside of legally “protected assets”). Whatever proceeds are generated are used to pay off your creditors and the rest of the outstanding balance due is forgiven. Talk about a heavy price to pay for forgiveness. Debt consolidation allows you to keep your property since there is no liquidation of assets.
-Debt consolidation can lead to better financial self-discipline and habits. Due to the longer time horizon’s debt consolidation plans normally produce, you are forced to be more disciplined in managing your personal finances. These habits are formed once you stick to a payment schedule and learn to budget more effectively. Debt consolidation can sometimess lead to better financial habits and attitudes that may lead to better financial health in the future.
Debt consolidation is just like any kind of loan or credit. You still have to plan your budget and stick to a payment schedule. The only difference is you are given better terms to pay off your debt. Slowly but surely, you can secure financial freedom with an effective debt consolidation plan.
Sources:
http://www.lowermybills.com/tipsadvice/credit-card-debt.jsp
http://www.prlog.org/10376910-credit-card-debt-consolidation-company-better-option-than-bankruptcy.html
http://www.lendingtree.com/debt-consolidation/advice/debt-consolidation/debt-consolidation-plan/