Good Credit CardDebt Consolidation Basics
Sometimes, managing your money can be a challenge. The idea of having things now instead of later is very attractive, but unfortunately excitement can sometimes take over from logic, and you are left with lots of little debts with repayments eating up your spare cash. There is a solution though!
Debt consolidation is a method of rolling all of your debts into one, making it easier to stay on top of them all with a single repayment. The basics of debt consolidation are fairly simple, as far as financial matters go. This is an overview of how you can straighten out most debt issues in three easy steps.
Step One: Budgeting
Figure out your total household income and subtract your total expenses. Don’t forget to keep all the receipts you are getting for miscellaneous things like ATM visits and small debit transactions. If you can’t find them all, then just request a detailed account summary from your bank. Most banks are happy to oblige for free or next to free.
Once you know how much you are spending, decide what categories and how much in each are essential and how much are elective. If you can cut your wasteful spending habits by even half, you are setting yourself up to be financially stable in the future. An important tip: if you are in debt, stop going to restaurants. Learn to cook at home from scratch: it’s fun, easier than you think and you can add up how much you save at the end of the month.
Step Two: Determine Your Total Debt and Decide
Tally up all your debt that exist beyond a single month and decide if you need a debt consolidation loan. Not everyone does. Signs that you need a consolidation loan are: debts, other than mortgages, that are higher than a total year of your disposable income; and mortgages that have unfair terms and interest rates higher than the present average. (This part might take some local research.) Most people intuitively know when they are in over their heads, so if you have the feeling that you are, then you most likely do need a consolidation loan from a bank or third party. Remember that when you are negotiating your consolidation loan, the overall goal is to prevent debt snowballing from high interest rates, so always check if the loan you are offered is actually a better rate.
Step Three: Setting a Repayment Schedule
This step depends a lot on how much you pull in with regards to income. A good guideline for people of modest means is to try to use 15% of your monthly income towards debt repayment. If you can afford to allocate more, then go for it, as the sooner you pay the less interest you pay.