When your debt has grown out of control, it’s not always easy to find relief from the stress. Managing your debt with a debt consolidation loan may be the breath of fresh air you need.
But consolidating your debt is often just the first step toward making lasting changes. By removing the weight of multiple monthly payments and replacing higher interest rates with one lower rate, you can focus on the next chapter of your financial life. A little extra work and a commitment to positive habits can help you build momentum toward your financial goals.
1. Reduce unnecessary spending
Debt consolidation creates a great opportunity to revisit your monthly budget and see where you might be able to cut back. Reducing your spending doesn’t have to mean making huge sacrifices or going without the things you love. Small changes like the following might make a meaningful difference:
- If you’re spending more than you want to on gas, consider walking, biking or using public transit instead for a few days a week.
- Identify the streaming services you use most often and unsubscribe from the rest.
- Stick to small, inexpensive day trips instead of longer vacations for a year.
- Set one evening a month to grab a bite at your favorite restaurant or check out somewhere new, but commit to making more of your meals at home.
2. Build your emergency fund
With a lighter monthly debt burden, you may have more space to prepare for the future.
If you haven’t had the resources to establish an emergency fund while managing multiple loans and credit card payments, a debt consolidation loan may free up money to devote to protecting your future. Otherwise, a car accident, medical issue or unexpected trip to the vet could put your financial stability at risk.
Ideally, you should try to set aside a few months of living expenses. But even saving a few hundred dollars in a separate emergency account could help soften the blow when you need it most.
3. Strengthen your credit
Managing debt sometimes takes a toll on your credit score. If you’re not sure where your credit score stands after consolidation, you may want to check your credit report for free at AnnualCreditReport.com. Look for issues like missed payments or high credit usage, which pose a risk to your credit score.
Even if your credit score is in good shape, maintaining responsible payment habits could help you qualify for better credit card terms and loans in the future.
4. Get caught up on your accounts
If you’ve fallen behind on any of your credit card or loan payments outside of your consolidated debt, you should prioritize getting caught up. Your payment history plays a major role in determining your credit score, and the longer you go without paying a bill, the more your score may suffer. After you catch up on payments, you might notice your score gradually increasing. Stick with your good habits to maintain that momentum.
5. Set up automatic payments
Automatic payments are a great option to help you avoid falling behind if you struggle to remember due dates or need to juggle multiple bills. Just make sure your linked account always contains adequate funds to cover payments. Otherwise, you might have to contend with overdraft fees.
6. Lower your balances
Your credit usage also accounts for a significant portion of your credit score. If you bring down your revolving credit balances, such as credit card debt, your credit score may go up. If possible, pay more than the monthly minimum amount on your credit cards. The less you owe, the less interest you will pay, which means lowering your credit usage may save you money.
7. Ask for help
Whether you’re making minor adjustments to your spending habits or overhauling your financial life, change isn’t easy. If you’re feeling overwhelmed or unsure of your next steps, don’t be afraid to ask for help. Speaking openly about your finances with trusted friends and family members may alleviate stress and help you generate ideas for approaching money differently.
For professional help, seek out non-profit credit counseling organizations. A qualified credit counselor may provide practical guidance for managing your money.
Sometimes, a little extra support after overcoming a financial challenge is all you need to thrive.
Notice: Information provided in this article is for information purposes only and does not necessarily reflect the views of gomyfinance.com or its employees. Please be sure to consult your financial advisor about your financial circumstances and options. This site may receive compensation from advertisers for links to third-party websites.
