If you’re finding it difficult to manage and track your monthly payments, you may be considering debt consolidation. But, if done the wrong way, debt consolidation can backfire and leave you in even more debt. That’s why we’ve listed out 4 key tips that will help you make it work.
- Create a realistic budget: In order for debt consolidation to work, you need to have a clear plan. So, make a budget that allocates money to your investments, retirement savings, emergency fund, and debt payments. When you do this, it’s a good idea to also account for things like holiday expenses and infrequent expenses. Creating a realistic budget like this will ensure that you don’t suddenly go all out and splurge.
- Stop using your cards: Consolidating your debts will make no difference if you continue using your cards. Think about it – if you again amass a credit card debt, you’ll need to pay off your debt consolidation loan and your credit card bills. That’s too much for anyone to handle. So, stop using your cards altogether until you’ve got a handle of your debt consolidation payments. Eventually, when you start using your credit card again, make sure to only use it sparingly and repay your bill on time at the end of the month.
- Compare debt consolidation products: Just because a certain debt consolidation product worked for someone you know, it doesn’t mean the same product should work for you as well. So, make sure to compare different debt consolidation options and choose one that makes the most sense for you. Some of the most common debt consolidation options are personal loans, credit cards, and home equity loans. Each of these options has its own pros and cons, so you’ll need to check if it is suitable for your financial situation.
- Enlist support: It can feel shameful to talk about debt, but getting the support of your family and friends can be a very powerful motivator and can make you more accountable. If you don’t want to discuss your issues with debt with those close to you, consider joining a debt support group online so someone can help keep you on track and motivate you to reach your goal.
