When you take out a debt consolidation loan, you’re doing more than just working with a lender garner a loan that can pay off all your debts at once. You’re making a decision that could potentially change your life.
Often, this decision turns out to be an extremely positive one. Debt consolidation allows you to get rid of the stress and anxiety of dealing with multiple creditors, while potentially lowering your monthly payments and long-term interest payments and offering a light at the end of the tunnel when it comes to your debt.
Unfortunately, not everyone who seeks a debt consolidation loan benefits from it. It could just be that the loan wasn’t the right fit for the customer. Many times, the lender just didn’t work out.
More often, though, it is because those individuals treated the debt consolidation loan like the end-all solution to their problems, which is unrealistic. Debt consolidation loans aren’t a pot of gold at the end of the rainbow. They’re a means to an end, a way to make it easier to pay off your debt.
In other words, if you take out a debt consolidation loan, but you fail to take concrete steps toward paying down your debt and living debt-free from there on out, then you’re treating the symptom of your indebtedness and not the cause.
Luckily, paying off your debt consolidation loan the right way is well within your reach. It takes discipline and sacrifice, but it’s not as hard as you might think. Here are some basic tips for sticking to your financial resolutions while paying off your debt consolidation loan so you make real progress and live debt-free.
Understand the full financial picture
To move forward financially, you first need to understand where you stand. That means getting a handle on how much debt you actually have.
With a debt consolidation loan, that’s easy. You have a single loan, a single statement, and a single interest rate to consider. You should be able to keep track of how much you still owe as well as when, realistically, you can pay your loan off.
We recommend tracking this number every month so you can see how much progress you’re making with each payment. Even something as simple as writing down your remaining balance and your eventual payoff date on a whiteboard or chalkboard on your refrigerator can help you keep the full financial picture in mind. Out of sight is out of mind, as they say, so keep your progress at the forefront.
It can also help you to get a sense of if your own progress is on track, at least your track. If you feel like the balance isn’t going down as quickly as you’d like it to, or that your payoff date can’t come soon enough, simply devote more than your monthly payment to paying down the loan each month. This will help you get out of debt quicker and on to living an easier life.
It’s also valuable to take stock of your credit score as well. While it’s not advisable or realistic to check your credit score constantly, it can be exciting to do a before-and-after check when you get a debt consolidation loan. You’ll be surprised at how much progress you can make.
Learn from the past
You didn’t get into debt on accident. Maybe you were forced to push the limits of your creditworthiness because of a family emergency, a medical issue, or some other event that was impossible to predict.
Often, though, people get into debt because of bad habits and poor impulse control. Credit cards are extremely accessible to just about everyone of age to qualify. While you may have gotten your credit card only to build credit or to save for emergencies, it’s easy to start to rely too much on it. You see a new pair of shoes that you want but can’t afford; you convince yourself that you deserve a treat. You take yourself out to a fancy dinner once a month because you work hard and need a chance to unwind. You need to impress on a first date or a job interview, so you splurge on a fancy new outfit. You open up a store credit card just for the initial discount and start running up the balance a few times a month.
All of a sudden, you’re in way over your head without much to show for it. Even if you feel like you had a good handle on what you spent, compounding interest can get ahead of you quickly. The next thing you know, debt is running your life.
When you take out a debt consolidation loan, all you’re doing is finding a way to pay off these past debts. Your only insurance against going into more debt is yourself.
Therefore, it’s vital that you take some time to identify the old habits that led to you getting into so much debt in the first place. Be brutally honest about it. Ask your friends and family to hold you accountable. Only by learning from the past can you make sure that you don’t mortgage your future again after you pay off your debt consolidation loan.
Save up an emergency fund
Even if you do learn from past mistakes and become financially responsibility, that doesn’t guarantee that you’ll never get into situations where you need a little bit of extra cash to get by. Emergencies happen, and so does life. If you have short hours at work, you need to pay off a small car repair, or you can’t quite afford to pay off your entire grocery bill, you’ll need to make ends meet, somehow.
These are the situations during which many people turn to credit, and understandably so. It’s hard to judge people for utilizing credit as a last resort for keeping their lives together, but that doesn’t negate the harm it causes.
To avoid this type of situation, take some time to save up an emergency fund that you can dip into when it’s necessary. This is not your rainy day fund meant to pay for a wild weekend or a spontaneous vacation. This is your last resort money meant to prevent you from having to turn back to spending on credit and undoing the progress you’ve made paying down your debt consolidation loan.
The amount of money that each individual needs in his or her emergency fund depends on that individual’s circumstances, but $1,000 is a good rule of thumb. You might also try to save up the amount of money you would need to pay a month’s worth of bills, in case you lose your job or can’t work for an extended period.
Likely, you’ll have to save up this money gradually, and that’s fine. It’s vital that you have this financial cushion to prevent you from going into even more debt, so consider it an investment in your financial future.
Avoid financially irresponsible people and situations
We all have that friend who likes to have fun, no matter the consequences, who (not ironically) still says YOLO, and who can talk you out of a quiet night at home and into a wild night on the town. It is a good friend to have. However, this friend can be financially dangerous.
Being around financially irresponsible people often leads us to be financially irresponsible ourselves. It’s part peer pressure and part adrenaline. You don’t want to be the only one not participating, so you give in to temptation and start spending money you don’t have.
Say you’re at the bar with your friends; one friend orders a round of drinks for the table. He or she eyes you up, indicating that you had better get the next round. You’ve already accepted the drink he or she offered, and you know that everyone’s going to want another one soon, so what do you do? Do you tell all your friends that you can’t afford it, or do you bust out the credit card?
Financially speaking, you would have been much better off if you stayed home on the couch or ordered water at the beginning of the night. Avoiding these types of financially irresponsible people and situations might not be fun, but unless you have a huge amount of willpower, it’s necessary to ensure that you don’t drive yourself further into debt.
On the other side of the financially irresponsible friend are the friends and family that want to see you become debt-free sooner rather than later. They understand your struggle and want to do whatever they can to help you succeed.
If you have friends and family like that, cherish them. When you first take out your debt consolidation loan, be transparent and upfront with them about what you’re trying to achieve. Explain exactly what it’s going to take to become debt-free. Most importantly, ask them to hold you accountable no matter what.
Even better sometimes is finding friends that are in a similar hole of debt and using the buddy system to keep each other honest. When you see your friend about to whip out his or her credit card to make a purchase he or she can’t afford, put a stop to it. Then, you should be able to count on that friend to do the same thing for you if the situation arises.
You should share in each other’s successes, too. Celebrate debt payment milestones and remind yourselves of what you’ll be able to achieve once you’re out from under the burden of debt. Celebrating and rewarding yourselves makes paying off debt slightly less onerous and can relieve the guilt of being the bad guy when your friend needs you to halt an unnecessary purchase he or she is trying to make.
Reassess your financial situation often
Getting your debt under control and becoming financially healthy is not a set-it-and-forget-it type of thing. You need to stay on top of your finances if you want to be successful.
First, make sure you have a budget in place that you can follow. Jot down all your essential expenses and compare them against your income. Take whatever’s left, save some of it, put a little extra towards paying off your debt, and save a little for yourself for recreation and entertainment. Put all of that in writing; all of a sudden, you have a rough budget to follow!
Every month, you should set aside some time to assess how successful you were in following your budget. Where did you succeed? Where did you fail? Where were costs or income different from what you anticipated? Use this information to update your budget, turning it into a realistic, living document that you can actually follow.
You can also use technology to stay up-to-date on every expense you have. Personal budgeting apps are very popular, and tons of free ones exist that connect directly to your bank account to help you get a clearer overall picture of how you’re spending your money and what you could do differently.
If you don’t want to use one of those apps, your bank likely has an app or online portal that will allow you to track your spending in real-time instead of waiting for bank statements once a month. In addition, if you’re not into technology, you could always use your checkbook register to keep track of what you spend and what you earn.
Remember, the road to debt repayment is not easy, and you’re only human. Remember to set aside some money each month to reward yourself and ensure that you can still have fun within a set limit. If you do mess up and overspend, don’t treat it like a failure or be too hard on yourself. Learn from the experience and simply try to do better.
If you’re interested in debt consolidation and feel like you can stick to the resolutions we offered, check out our reviews and contact National Debt Relief today!