Just like the name suggests, debt consolidation is a debt management strategy that allows a person to consolidate numerous debts into a single payment plan. The ultimate goal of debt management is to make your payments simpler. Rather than managing multiple debts at different times of the month, debt consolidation brings all these into a single debt.
There are numerous strategies that you can use when you want to consolidate pay day loan:
- Transferring your balance to a new credit card with a low- or zero interest rate
- Borrowing a loan to assist you in clearing all your debts, which leaves you with a single debt to manage
- Hiring a credit counselor to help you in negotiating the payment of your debt
These strategies can help you create an affordable debt repayment plan, which can be easily approved by federatedfinancial.com. Besides, all these options are very effective for debt consolidation. You only need to determine the ideal solution depending on your financial situation.
So, before you choose your ideal debt consolidation strategy, the following steps will make it easier to consolidate your debt.
Evaluate your debt situation
The first step towards an effective and stress-free debt consolidation is understanding your debt situation. In any case, it’s important to understand the issue thoroughly before taking any action. How can you select the right solution if you don’t understand the problem you want to solve?
With that, there are several things that you must consider when evaluating your debt situation. These things are:
- Your current balance – it’s important to understand how much you owe to ensure you have an accurate payment plan.
- Current interest rates – this can determine how fast your debt will accumulate within the repayment period.
- Your due dates – with this, you must continue paying all your debts until you have a consolidation plan in place.
- Your credit terms – check whether you have any penalties in your current debts, as they can hinder your consolidation plans.
Determine the amount you can afford to pay on your consolidated debt
Before you start the consolidation of payday loans, evaluate your ability to solve it in the first place. That means you should understand your financial status before choosing a solution. For instance, one might think that debt consolidation is the solution to your debts. However, if your current income doesn’t allow you to manage your debts, you might need debt reduction, rather than debt consolidation.
Here are a few things to consider when analyzing your finances:
- Your current income
- Your expenses
- Your source or sources of income
- Your emergency funds
Although you are encouraged to spend as much as you can towards clearing your debts, you shouldn’t commit all your disposable income towards clearing your debts. Always assign a lower percentage, as this will leave you with a buffer on your expenditure.
Establish financial goals after you consolidate your debt
Once you evaluate your debts and financial situation, you need to come up with financial goals. Mostly, your expenses will give you a clear idea of these goals. The main reason to establish financial goals is to ensure that they are not compromised after consolidating your debts.
Please note that most of your debt consolidation options have a direct effect on your credit score. For example, taking a debt consolidation loan can lower your credit score, and this can reduce your chances of securing another loan. Also, if you have plans to use your credit cards in the future, you should consider postponing registering in a debt management program. When you join such a program, you will not be able to use your credit cards until you clear your debt.
Please note that these are some scenarios you will face if you don’t consider your financial goals when selecting a debt consolidation
Research different consolidation options
Now, after getting the necessary information about your finances, it’s time to come up with a list of different options for your debt consolidation. Here are some options for your consideration:
- Taking a debt consolidation loan – this option allows you to borrow unsecured loans to clear numerous debts. However, you must have a good credit score to get the lowest interest rate.
- Home equity loan – this option is for people who own homes. The best thing with home equity loans is their low-interest rate since they are secured. The downside of this option, on the other hand, is that you can lose your home if you fail to pay all your debts.
- Balance transfer – in this option, you will need to get a new credit card with a 0% interest rate and transfer your balance to the new card.
- Debt management – this option involves a credit counselor, who will help you to create a debt payment plan that meets your unique financial situation.
Check the debt consolidation choice that you qualify for
Now, the last thing to do is to choose a debt consolidation strategy that’s ideal for you. At the end of the day, you should be able to choose the best solution depending on the information that you gather about your debt, financial goals, as well as debt consolidation option.
Here are a few questions to ask when choosing a debt consolidation strategy:
- What kind of debts do I have?
- What are my financial goals?
- How much can I afford to pay every month?
Please note that you need to consider your personal preferences too. If you have a challenge in staying up to date with your payments, consider using debt management for your credit counselor to assist you in making your payments. However, if you discipline yourself to honor your payments, balance transfer, and debt consolidation loans can be your option.