Despite our best intentions, spending within the limits of our carefully planned budgets is not always simple nor possible. With the rise of clever marketing tactics and easy credit, overspending has become a habit rather than an isolated setback or an emergency triggered decision. With credit and debit cards becoming the payment methods of choice, it’s never been easier than it is today to ignore your gut feelings and carry on spending. Science agrees: research conducted at the San Francisco State University suggests that
"one possible reason why credit cards may facilitate compulsive shopping is because they allow consumers to separate the pleasure of buying from the pain of paying."
But the real problem of overspending is increasing debt. Credit cards usually come with high interest rates and the more credit cards you own, the harder it will be to keep up with the monthly payments. That’s when effective money management comes in and one of the strategies you might consider is debt consolidation.
What is Debt Consolidation?
Simply put, debt consolidation means taking one loan –unsecured or secured against an asset like a house or a car – to pay off other loans from different lenders and with different interest rates. It’s recommended when dealing with credit card debt and student loans as its low interest, fixed rates make the monthly payments more manageable within a personal budget and more affordable.
Is Debt Consolidation for You?
Using debt consolidation as a means to get back on track, financially speaking, will only work if it’s the right option for you. In order to apply for a debt consolidation loan you need a decent credit score to begin with. Then you have to do a little bit of math and see how much you’re currently paying each month towards your credit cards and how long it will take you to pay them all off. Compare the results with the debt consolidation plan you have at hand and see if it makes sense in the long term. How much will the interest rate cost you over time? The answer should make it easier for you to determine if debt consolidation is truly the strategy you need.
On the other hand, if you’re struggling to keep up with the monthly payments, the interest rates are too high and you have too many bills to take care of, debt consolidation may be the fix you need in order to get your finances straight.
The Do’s and Don’ts of Effective Debt Consolidation
Do: seek expert advice.
There are many companies out there which offer debt consolidation services but, before making this kind of commitment, you should get customized advice. Plan your budget around your debt consolidation loan and stick to it so that you’ll always be able to make your payments on time.
Don’t: never miss payments or you could face penalties, higher interest rates or a damaged credit score.
Don’t continue overspending. Debt consolidation won’t work as long as your spending habits don’t improve so think well and be honest with yourself before making a purchase.
Whatever decision you may take, remember, it can have a long term impact on your finances. But, as long as you plan carefully, act smart and be responsible, the impact will be a positive one.
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