Is debt consolidation the best way to pay your unpaid bills? The simple answer is, it does help you to pay off your debts provided you hatch an effective debt consolidation plan and make smart financial decisions.
Debt consolidation is often considered as a good debt relief option since it helps to bring all your unsecured debts into a single and affordable repayment plan. You have to stick to the repayment plan for 2 years to get rid of debts completely.
Is debt consolidation an easy process?
A smart and simplified repayment plan is the biggest reason behind the immense popularity of debt consolidation. It’s an easy process but you have to be careful about your bad spending habits. You need to change your poor spending habits, save money, and focus on your goal. Otherwise, like many other people, you may fail to pay off your debts through a consolidation program.
How to make your consolidation plan a successful venture
If you’re dead serious about consolidating debts into one monthly payment successfully, then here’s what you can do now.
- Spend less every month: Some people spend more than what they earn after enrolling in a debt consolidation program. They go back to the old spending habits that lead them to debts.
If you wish to make your debt consolidation plan a huge success, then limit your monthly household expenses. Sometimes, people tend to overlook their small expenses. But that is a wrong financial move. Small expenses end up as rather enormous at the end of the month. So it’s better you reduce your apparently insignificant expenses as much as you can.
When you reduce expenses and save money, you get a golden opportunity to pay off your debts as soon as possible. You can make extra payments to the debt consolidation company.
Here are a few tips to reduce your monthly expenses:
- Cook what you love and eat with the people you adore in your home
- Refinance your mortgage to cut down your home loan interest
- Watch movies at home with your family to lower entertainment cost
- Sell all the unwanted items to clean your home and generate money
- Use CFL bulbs to save money on the electricity bill
- Buy household goods in bulk when there are lucrative sale offers
- Buy clothes from thrift stores to save dollars
- Create a budget that works: A budget gives you a clear plan of attack. It gives you an idea of how much money you should allocate for your household expenses, debt payments, emergency fund, medical expenses, fun expenses, etc. This helps you to stay on the right financial track. Your main goal is to pay off debts. But you shouldn’t restrain too much also because that is not healthy. In the long run, you may end up spending a lot of money to pamper yourself. That’s not a wise financial move.
Create a realistic and flexible budget. It should take care of your necessary expenses and also fun expenses.
- Manage your credit cards wisely: When you want to consolidate debt into one monthly payment, you have to handle your credit cards carefully. Credit cards give you instant cash. But it’s equally true that they keep you in debt for a long period.
Live within your means and be less dependent on your credit cards. Use cash instead. Stop using the cards on which you have incurred debt.
- Create an emergency fund: Life doesn’t go as per your plans. So you need to save for the rainy days especially when you have only one source of income. It’s best to save almost 6 months’ worth of savings due to the following reasons:
- If you lose your job, it may take time to get another one. You’ll get time to wait for a good job offer.
- When you suffer from a chronic disease, you need rest. You may not be able to get back to work soon.
- You may need 6 month’s worth of savings to renovate your home suddenly.
An emergency fund helps you to stay away from debts. When you have only single income and need to tackle an unplanned event, you’re doomed. Either you have to pay for the unplanned event or send payments to the debt consolidation company. Both are important. What will you do?
An emergency fund helps you take care of both the issues deftly.
Debt consolidation doesn’t suit everybody. For instance, a debt consolidation plan works best for the unsecured debts like credit cards, payday loans, medical bills, utility bills, and so on. You won’t get any success if you try it for paying off secured debts like a mortgage or an auto loan. If you can’t change your bad spending habits, then also you won’t get any success. You need to be careful.