You should always pay off your creditors to lead a debt-free life. If you fail to make payments on time, your loan interest keeps piling up every month. Consequently, it affects your credit score. People are plagued in debt because they cannot buy a home in cash or fail to clear their mortgage payments early. Though people may advise you to do cash payments for investing in real estate, it is not always possible after making both ends meet. That is why debt consolidation is useful to manage large debt such as several credit card loans or student loan. The best way out is merging your numerous debts into a single loan called debt consolidation. It is the second-best option if you are running short of cash. Consolidation will let you clear your debts fast and that too with reduced monthly interest.
According to an article published on https://www.entrepreneur.com, you must get rid of unnecessary expenses and free up cash quickly. It will help you to pay off your debt on time. Identify what are things that got into debt in the first place. Make a list of such expenses. Once you are through with it, stop spending on such items until you are debt-free. For your better understanding, here are four super tips to debt consolidation:
1. Sell some old assets to pay off your debt
It may sound a little extreme, but practical when you have mounting debts affecting your family’s life. If you have a swanky, expensive car in your garage and having difficulty in paying off your loan on time, selling it is the best option. You would like the concept of compound interest to work in your favor and not against you. Therefore, simply sell those assets to pay your loan amount right away. You do not need these possessions considering your current financial crunch. You can always buy a new car once you are debt-free. There is no point in using items that do not add value to your life when you are deep down in debt.
If you are living in a large, sprawling house, either rent out part of the property for some fat monthly income or sell it and live in a smaller home. If you have a villa and the rooms are not used, what is the point of having so much living space with no inmates to live? These small changes in your lifestyle will make you pay off your creditors faster than you had imagined.
2. Ensure your consolidated loan makes you debt-free quickly
Before you apply for the loan, you should ask why you need it in the first place. If you feel that you have the financial stability to pay off your loans quickly, do not opt for consolidation. When you take a consolidated loan to improve your finances, it requires paying a monthly sum with a period of five years. It implies your monthly payment is higher than what you are shelling out now, based on the difference in the rate of interest. If you need to pay off your loan for a long time, you are paying more than the original amount. Therefore, choose a lender with a reasonable payback time, a company that has genuine debt settlement reviews from esteemed clients and a good reputation among them. Inquire whether the borrowers were satisfied with the terms and conditions of the debt consolidation company.
You need to do some math before taking the plunge. If the amount payable at the end of the loan tenure is too high, we recommend that you think twice. Compare loan providers, their prices, rates of interest, and then make an informed decision.
If you find that you are paying much more despite low-interest rates, then the lender has some hidden charges. That is the reason why you should read the fine print very carefully and several times before signing the agreement papers. Ask questions to get things clear in your mind for once and for all.
3. Avoid making the minimum payments at all cost
It is a very common mistake of borrowers. They think that making only the minimum payments will make them happy. Wrong! It will only clear your monthly dues but not help in paying off the original amount borrowed. We recommend that you shell out more than the minimum amount due to clear your total borrowed amount quickly. It will benefit you in the long-term, making you debt-free and financially stable. There is no point in making educational loans for 20 years without reducing the principal sum that you have borrowed.
Ensure that you avoid using credit cards for shopping provided you have the cash in paying back the amount before the due date. You should always clear your card payments right away to improve your credit report and spending habits. There is no need to lend ear to those who say that you need to have a certain balance for achieving an outstanding score. Did you know that the sum you own on your loans and cards contribute to 30 percent of your score?
Make more monthly payments to pay less interest down the years and clear your dues quickly. You will need to control your expenses on the other areas to become debt-free faster. Even a consolidated loan will require some financial discipline that you need to maintain.
4. Ensure that you take a low-interest loan
The best solution is taking a low-interest consolidation loan to pay off your creditors fast. There is no sense in rolling your 12 and 5 percent interest debts and merge into a 10 percent interest loan. Think about the rates of interest before signing the contract. For example, if you have an educational loan with a 5 percent rate of interest and the consolidation loan is of the same rate, there is no point in taking out that amount. Take advice from financial experts if you are unsure of your next step.
Clearing debts to your creditor quickly are the key to the success of your financial independence and stability. It will help you to increase your funds and build considerable wealth down the line.