Considering debt consolidation to eliminate debt? Here is what you need to know
It’s not only costly, it is also financially crippling.
Whether it’s a small debt or many debts, you always have an obligation to the creditor. It’ll always bar you from attaining the financial freedom that you crave for, or you may not attain it as fast as you’d wish to.
Statistics show that 80% of American citizens are in debt, and if you are within this bracket, you agree with me that saving money or even investing can be a real hustle.
It is, therefore, important that you learn how to get out of debt real fast. That way, instead of focusing your energy on making monthly repayments to creditors, you’ll redirect the same energy towards earning more and investing.
Why a life without debts is awesome
While many people think being in debt is normal and inevitable, this mindset is very dangerous, especially if you make it a habit of financing everything and anything using loans.
With personal loans and credit cards, you can always have everything you want within your financial reach, but the truth is, the more the debts pile, the more your troubles increase.
Below are some ways in which a debt free life can be financially rewarding:
- Allows you to work fewer hours – I believe you’d enjoy working less, but still being able to take home a fat check. This may not be the case if you are heavily indebted. The deeper you are in debts, the more effort you’ll put to keep up with monthly repayments. Now, eliminating your debts, allows you to work less say, 20-30 hours a week instead of 40-50 hours because you’ll not be financially obliged to any creditor. It also doesn’t enslave you to a less satisfying job.
- You can finally build a real savings account – forget about the $500-$1000 savings account, but $10,000 plus in savings. If you have such amounts stashed in a personal fund, you could easily handle any emergency without borrowing or relying on your credit cards.
- Improves your spending habits – if you had been in debt, and managed to eliminate them, then you probably know how much sacrifice you had to put. You’ll always be conscious of how much you spend. You’ll always avoid anything that’ll take you back to that pit hole.
- Gives you an exciting level of financial freedom and security – debts will always enslave you. You’ll always be worried about loan payments every month, collection calls and a damaged credit score. It’s even worse if your paycheck isn’t sufficient and you are already stretched. A debt-free life allows you to be less anxious, and enjoy a new level of inner peace. Your assets are also safe.
- Better lending rates – sometimes, circumstances may force you to borrow. If you have a good credit history, you’ll enjoy better lending rates. Lenders charge high interest rates on borrowers with bad credit, and if you have never been late on loan repayments or defaulted, getting a loan with better terms will be a less daunting task.
- Retire young – I believe you love the idea of retiring young and healthy to enjoy life. Unfortunately, huge debts may force you to work into your 60s. The more debts you have, the less disposable cash you’ll have to keep in your retirement savings account.
So how do you get out of debt?
How to get out of debt
Studies have revealed that 73% of Americans die while still in debt. Now that sucks!
Getting out of debt may be real work, but it’s not impossible. With persistence, determination, and dedication, you’ll eventually regain your financial freedom.
The Federal Reserve estimates that the student loan debt has risen to 275% since 2003 and the delinquency level is quite high. And just like weight, credit card debts don’t get out of hand overnight; you’ll only realize you are overwhelmed when it’s out of proportion and you can’t pay.
Truth is whether you call it “good debt” or “bad debt”, being in debt is not a good thing.
Below is a step to step process on how to regain your financial freedom.
Bite the bullet and do the math on how much debt you owe
Make a conscious effort, call the credit companies and let them calculate all your credit card balances for you, the expected monthly payments, and interest rates and APR for each card.
If you feel overwhelmed, just remember that no matter how huge they are, you are making an effort to reduce them and some people probably owe much more than you do.
Prioritize your debts
Now that you know how much you owe, you can attack your debts.
Rank them according to the most and least expensive in terms of interest rates and decide which one you are going to pay off first whether it’s medical bills, student loan, or the credit card bills.
It’s important to pay off debts with high interest rates and APR because they are likely to accrue more interest.
Check your spending habits
You are trying to eliminate your debts, for god’s sake, don’t add more.
Resist the urge of using your credit cards. Try to avoid impulse buying and save up that cash. It’ll come in handy when you badly need it.
You could also talk to a debt counseling agency to help you get on the right financial track.
Talk to credit card companies to lower your interest rates
You have nothing to lose so, make that call and negotiate a lower interest rate.
Let your creditors know you are making an effort to aggressively pay off your debt and a better interest rate would do you some good.
You’ll be surprised that some companies may grant your request and you’ll end up saving a lot.
Decide on the best way to pay off your debt
You need to come up with a smart way of clearing your debts.
- Work more and earn more.
- Use the freed cash from conscious spending and negotiating a low interest rate.
- Consolidate your debts.
We’ll talk more about debt consolidation, how it works, and whether it’s a better option or not.
So what is debt consolidation?
It means adding up all your unsecured debts and then taking out one huge loan to pay them at once. So instead of writing different checks every month, you’ll focus on making one single payment on the new loan.
Debt consolidation loans should help you clear off your loans faster and lower the cost of your debts.
Common ways of consolidating your debts
- Personal loans – it’s one of the easiest means of consolidating your debt, but it works best for people with a good credit history. With good credit scores, you’ll be able to get better rates.
- Home equity loans – if you have a house, you can use it as collateral to get a home equity line of credit.
- Balance transfers – it doesn’t clear your balances but moves your debt from one lender to another. It works best if you can clear off the entire balance within the 0% introductory period and if you have a good credit score.
If you have bad credit, you could enroll in a debt management program.
Debt management plan
This plan is designed to get you out of debt within a specified period of time say, 3-5 years. When you are in this plan, you are not supposed to use your credit card or apply for new ones. The plan entails using a debt management expert to negotiate with creditors on your behalf.
They’ll talk to your creditors to lower your interest rates and waive the fees. You’ll then make one single payment to the debt company who will then distribute it to the creditors. It is, however, important that you use reputable debt management companies to avoid being scammed.
Benefits of debt consolidation
The benefits of consolidating your debts are:
- Boost your credit score – paying off all your credit card bills will boost your credit ratings.
Simplifies your financial life – instead of writing different checks every month and keeping track of various repayment dates, you’ll only have to focus on making a single payment to one lender.
- Better interest rates – you’ll reduce the cost you’d have incurred on the different loans. You can negotiate a low interest loan and a long term to pay off your debts in a manageable and affordable way.
- Less anxiety and better credit management services – if you decide to use a debt management plan; you’ll get a debt manager who will negotiate with creditors on your behalf. They take the pain of dealing with different lenders off your back, and you will get better financial advice.
The downside of debt consolidation
Your debt doesn’t reduce nor is it forgiven.
You still owe the same amount and if you don’t make a conscious effort to clear the new debt faster, you may have just succeeded in prolonging your debt.
The debt management program may take a long time for your debts to be marked as cleared, and this could hurt your credit.
A debt consolidation program may help you clear your debts faster, but it doesn’t help you change the bad habits that got you into debt in the first place. So unless you change your spending habits, you may just fall back into more debts.
Should you consolidate your debts?
Although it gives you some breathing space, it doesn’t take the load off your back.
What you are doing is simply passing the responsibility of clearing your debts to another lender when you can do it alone.
It’s normal to get overwhelmed with the numerous bills, and keeping up with the different repayment schedules may be difficult, but the truth is when it comes to behavior and the math, everything remains constant.
Well, there are instances when debt consolidation works, but it may not be the same for everyone.
As mentioned earlier, you can clear off your debts painlessly with the above steps.
Whichever means you use to get out of debt, we are here to help you do it in the easiest and most affordable way. Fill out our loan application forms today and work with our pool of trusted lenders who’ll help you get back on the right financial track.