Overburdened with debt? If so, you are running short of personal finance and not prepared for emergencies. According to a report by Bankrate.com, more than 70 percent of US citizens fall short of emergency savings due to loans and credit card debts. In fact, 23 percent of Americans have a dearth of emergency funds, and 22 percent of them have less than 90 days’ worth of everyday expenditures. All such information proves that multiple loans will adversely affect your finances.
When you have more than one loan while coping with a poor credit score, managing your household expenses seem a grueling task under such circumstances. So what are you supposed to do? You need to improve your personal finance. The best way to deal with the situation is paying off your loans through debt consolidation. As far as consolidation is concerned, you can clear your debts quickly and with negotiation skills, you could even manage to shell out less in terms of the total amount payable.
Refinancing is the best solution if you have too many debts, and want to improve your financial situation. Consolidate all your loans into a personal one and make regular monthly payments to become debt-free.
However, you must shop around for consolidated loans. According to an article published on huffingtonpost.com, people with debts must look for a consolidated loan offering minimum interest rates throughout the loan period and lowest monthly payment. To make your job a tad easier, here are a few tips for debt consolidation:
Avoid Making Minimum Payments
Making just the minimum payment is a common practice among borrowers. For example, if you have a medical loan and which last for about 20 long years, avoid making minimum payments. Shell out more than just the minimum amount. Make sure you don’t use your credit card for shopping provided you have the financial ability to pay back the full sum of money before the due date. Try to make credit card payments on time to improve your credit report. Avoid listening to people who say that you should have some balance on your card for a healthy credit score.
Did you know that the money people owe on loans and credit card debts contribute to approximately 30 percent of their credit score? Therefore, pay more than the minimum amount so that you can pay less interest over the years and clear your dues faster. When you pay more, you need to reduce your spending on other areas. Even when you opt for a consolidated loan, you should have some discipline to make the smooth process sailing.
Make a Consolidation Strategy to Clear Your Debt Quickly
Why are you consolidating your loan? Do you want to clear your debts quickly, right? When you opt for consolidation, your monthly payment is higher than what you are paying now. Now, this depends on the difference in the rate of interest. When it takes longer to repay due to consolidation, you may need to shell out more money than the original amount that you borrowed. It is all about calculation and number crunching. The lending company knows more arithmetic than you do when it comes to monthly payment. However, exercise diligence when taking a consolidated loan. You can visit sites such as Nationaldebtrelief.com if you want expert advice on debt consolidation and paying off your loan quickly at reduced interest rates.
Transfer Balances from One Credit Card to the Other
Do you want to maintain a low rate interest rate? If yes, you can transfer balances from one card to the other. It is a legitimate practice. When it comes to credit cards, they have reduced introductory rates, especially on new cards. It gives you adequate time so that you can pay off the borrowed amount. Now, this is advanced financial planning, and therefore, you should exercise some discipline to make the most out of this strategy. The practice works for debts with a low balance. Therefore, if you have a healthy credit score irrespective of the financial mistakes you made, you have the liberty to apply for a new credit card with low or zero percent interest. Opt for it if you are confident about repaying the debts during the zero-percent balance transfer stage. However, you need to shell out two or three percent balance-transfer fee. Make sure you do not use those cards again after paying the dues off.
Negotiate a Reduced Interest Rate
If you are paying a lot of money on interest in your loan or credit card, negotiate with the lending company. You can always call them and place your request for a reduced rate. It calls for some amount of persuasion. You could reduce up to 10 percent depending on your negotiation skills. If you have been a good customer to the lending agency, you can expect a reduction of interest. Therefore, always try and don’t be afraid of rejections. Make an effort to roll into a reduced interest payment. It is no use combining your 10 percent and 5 percent interest debts and roll into a 10 percent interest loan. Therefore, before you apply for a consolidated loan, make sure that it benefits your situation. For example, if you have a 5 percent interest rate on student debt, there is no point if you need to pay the same rate. Opt for consolidation if you manage to get a reduced rate.
Opt for an Unsecured Loan
You can consider an unsecured loan. Though you may not get a favorable rate of interest, an unsecured loan is better than credit card interest. You become eligible for 10 percent if you have a healthy credit report. When it comes to these loans, they have a shorter term; it helps you save and pay off the dues. Though the monthly payments are more, you can pay less when it comes to the total amount.
Debt consolidation helps you pay your multiple loans, thus improving your personal finance when you become debt-free. Consolidation may not reduce your financial debts but simplifies the repayment process.