Debt consolidation remains to be one of the most popular debt repayment programs for consumers tangled in a messy debt situation. The program allows consumers to combine and put together various debt payments under one account. This makes it easier to manage and monitor the payments having to focus only on one account.
This is an ideal payment set-up for consumers who might already be way in over their head with their monthly payments. There are a lot of benefits to consolidating debts that is why it has become a go-to program for those in debt. However, the work does not end after enrolling in the program. As much as it would be nice for all your debt payments to just magically disappear, that is not the case.
Here are a few things to keep in mind as you go through your debt consolidation program.
Adjust your budget to work with your new payment amount
Among other things, a new payment amount will be your focus of attention as you combine your debt accounts. One of the first things you need to do is to incorporate this amount in your budget. Remember that the consolidated amount will only form part of your budget. You still have other expenses in there that you have to attend to.
You would have monthly recurring utilities such as gas, lights and even water to think about. The food budget is also something you cannot overlook. With all these, it is important that you make the new amount work for you and your budget. There could be times that you have to make adjustments in other areas to accommodate the consolidated payment amount.
Do not miss a payment
Once you start making debt consolidation payments, one of the things you should avoid is missing a payment. For some, late credit card payments might have been the reason why they decided to consolidate their debts. The last thing you need is to get into late payments again and start thinking about consolidating again.
Missing payments usually lead to even more financial trouble. For one, you will start to rack up penalties, fees, and other charges. These are some of the completely avoidable “speed bumps” that you should think about. Not only does it add stress to your day to day, it also bloats the total amount you have to pay at the end of the month.
Another disadvantage of missing payments even after you have consolidated your payments is that it will reflect negatively in your credit score. If your plate payments get reported to the credit bureaus, you will see a dip in your score. This makes it even more challenging to take advantage of credit and other loan tools in the future.
Assess your buying behavior
Now that you have an idea the challenges you can encounter when missing payments on debt consolidation loans, how do you correct that? For one, you have to set up a system where you are reminded of the payments. You can easily put this in your calendar so do not forget. You can do that in your smartphone or mark a physical one in your home or office calendar
One of the things that technology can give you is convenience and payments are included in that package. Financial technology has grown by leaps and bounds that lenders and banks are able to automatically process payments on your behalf. You just have to set it up, indicate where the payment will come from, the amount, and the date when to send it out. The result will be automatic payments that you simply have to monitor from time to time.
However, you need to remember that technology is just a tool that you manipulate and if you do not take a look at your buying behavior, you can do in debt again. Try to grow as a person and learn how to manage your money better. Take a look at spending tips especially during sale events to help you manage your impulsive buying behavior. Once you are able to rein in your attitude, the rest can come easier than before.
Align your financial targets with the debt consolidation payment
At this point in life, you need to have long and even short-term goals that define your present actions in life. Why do you save so much of your monthly pay? It can be because you want to save up for a downpayment on a house. It can even be to start a business you have been planning on for years. Or it could also be the chance to retire early in life pursue your passion.
In all these, your consolidate payment will play a big role with how you move forward with your goals. For one, the payment amount might eat up a lot of your discretionary income that used to go to retirement savings. Do you just move that money around to meet your payment or do you try and increase your income? These are some of the decisions you have to make when consolidating loans because it can and will affect your life plans.
Do not acquire more debt
As you get hold of your buying behavior, it is a good idea to simply stick to the basics when you are in the process of repaying debts. One reason is that this will help you stay away from acquiring more debts. The simpler your budget is, the less you are to make hasty decisions such as getting a new vehicle or even splurging on an expensive vacation. This is important as CNBC reports that average American families carry over $8,000 in credit card debt alone.
Simplicity also allows you to manage your credit cards better which can be one of the big reasons why you enrolled in a debt consolidation loan. Stay away from unnecessary debt as much as possible. As you do that, you are able to keep your income intact and use it to meet your financial obligations including debt payments.
Audit your expenses carefully
If you need an idea how, where, and even when you are making unnecessary expenses, you can simply audit your spending. You can start with looking at the receipts you have and tracing back your financial movement. You can also try and ask your lender for a statement or simply use the one you get every end of the month.
As you look at your activities, you can list them all down and identify the ones you can do away with and even those you can lower down. If you have subscriptions that rarely use like that gym membership or magazine subscription, cut them off. You can simply look at group activities in the park or read up on your hobby online. It might not look much but being able to save on a few of them each month can add up to a significant value at the end of the year.
Check your credit report
You can also get a copy of your credit report after you have consolidated your debt. This way, you are able to monitor and weed out unusual activities in your accounts. The Federal Trade Commission reminds consumers that they can get one free report every 12 months from Equifax, Experian, and TransUnion. Being proactive with your credit report is a great way to fend off identity theft which can really harm your finances. Thieves might already be making charges on your card or worse, opening other lines of credit under your name you don’t even know about.
One advantage of monitoring your credit report is that you get to correct errors in it. You need to understand that your report is far from perfect and it is prone to carry mistakes. These mistakes could be paid-off debts in the past or even reflecting late payments on your obligations. Mistakes such as these can really hurt your finances. Once you find them, report them right away to get your credit score back up.
Debt consolidation is a great repayment tool that helps consumers manage a multitude of debt accounts every month. However, getting into the program is not the end it. You need to make sure that you make an effort to meet your payments and be sure to monitor your account. This will help you stay on top of your finances and prevent the need to consolidate again.