As per financial experts, paying off debt requires a comprehensive plan. Debt consolidation, which is the rolling of several loans into a single credit card or loan at a lower interest rate, is one such strategy.
Consolidating debt can be psychologically beneficial as your debts seem more manageable. However, it works best for high-interest-rate loans like credit cards. Here are some tips for successful debt consolidation:
Stop Using Your Cards
You must not use your credit cards while you try to clear debts. Some people choose to take extreme measures like freezing their cards in ice, locking them far away, or cutting them up. Some experts say these steps, known as commitment devices, can be effective in helping people achieve their long-term goals.
However, locking up your cards doesn’t mean closing your accounts as doing so may damage your credit. Use your card every few months for a nominal charge to keep your account active, but make sure you pay back the amount in full at the earliest.
To stay determined, write down why you want to get rid of your debts and how often you will make payments. Also, set reminders to monitor your progress.
Create a Realistic Budget
A basic budget allocates money for an emergency fund, debt payments, and contribution to savings for retirement. However, when you consolidate debt, your budget needs to be made differently.
A successful budget will include infrequent expenses, such as car registration fees and those times of the year when expenses are high (like holidays), in the place of debt. A realistic budget makes provision for you to have fun and spend on things you love and value so that you don’t feel deprived, and avoid splurging when you finally go shopping.
Enlist Support to Achieve Your Goal
You may feel ashamed to discuss debts with your close family or friends, but peer support can be a great motivator in helping you reach your goal of becoming debt-free and can hold you accountable.
A close family member, debt support groups, or online forums can assist you in staying on track to achieve your goal. Online lenders like Prosper and Payoff offer personalized apps or recommendations to encourage borrowers.
Also, consider comparing consolidation products like debt consolidation loans and balance transfer cards to choose the products best suited to help you make debt consolidation work.