When your debt payments start becoming too tough to keep track of, you may be tempted to look at drastic measures to cut your spending. This, however, will seldom help in the long run. To manage and reduce your debt effectively, it’s important to have a comprehensive plan. To this end, debt consolidation, which involves consolidating multiple debts into a single loan, is one of the best strategies for people who are struggling with debt.
That said, before you start looking at debt consolidation products, it’s important to know that consolidating your debts alone is not enough. Here are certain ways to make debt consolidation work for you.
Re-Work Your Monthly Budget
Before you consolidated your debts, you may have allocated money for your savings, debt payments, and emergency fund. While this type of budget certainly helps, it’s important to also account for infrequent expenses and unforeseen costs, especially if you are trying to cut down on your expenses. Doing this will help you stay on track even during months when you may need to spend more.
Avoid Using Your Credit Cards
Debt consolidation only makes sense if you don’t incur any new debt. If you continue using your credit cards and keep piling on the debt, there is not much debt consolidation will do for you. While it’s a good idea to keep your credit accounts open so they don’t adversely affect your credit score, it is important to only use your credit cards in times of emergencies. It’s best that you don’t open any new credit accounts while you are trying to pay off your debt.
Compare Various Debt Consolidation Options
Most people who opt for debt consolidation choose to either get a balance transfer credit card that charges no interest for a promotional period, apply for a personal loan, or tap into their home equity. Alternatively, you could also borrow from your 401(k) or life insurance policy. The debt consolidation option that is right for you will vary based on your financial situation and the options available to you.
Once you bring your debt under control, you could start reusing your credit cards again, but ensure you don’t go overboard with your expenses!