One of the smartest moves in your recent times can be the adoption of debt consolidation. But you have to drop your old habits of overspending. Else you might land up in the same trap from where you recently tried to get out by opting for a consolidated single loan that integrates other outstanding debts.
Debt consolidation loans often bear a higher interest rate than your existing loans. This is because lenders are skeptical about your credit performance and they are they want to cover their risk by offering debt solutions at a very high interest rate.
It has been shown by research that 60% of the individuals who have consolidated their debts acquired added debt by spending high on their credit cards. And this despite of having all their debts secured by a loan that combines all their existing debts into a single component with a single monthly payment.
It is imperative to cut down your extra spending after a debt consolidation measure. This cost cutting involves cutting costs on branded high priced products at shopping malls and reducing costs on outings and parties. Also spending less on gas by reducing the driving time etc. By adopting these habits you can avoid additional debt and unnecessary spending.
You are right back into the same trap if you overspend your credit limits. You might pay for defaulting credit card repayments, deplete your bank accounts or event take some other loan to pay your credit card debts. This is the famous vicious circle of debt that bad spending habits can make you fall in.
If you want to save your money you should refinance your loan when the interest rates are on the low. A negotiation of a single point drop or two can save you huge money on your mortgage interest. Repeated refinancing is also considered a good option to lower the debt burden by most people who have gone for debt consolidation. You can take the opportunity of lower interest rates and save some money.
Your spending budget should be fixed. A great opportunity to set your budget is if you have been approved a home equity loan. Maintaining a disciplined spending habit and obeying to the rules you set for yourself can save you a lot of money. Setting up a monthly guide for spending can help you rebuild your financial corpus.
You need to calculate all your steps and decide what is the best for you to ensure that your consolidation effort does not turn out to be unsuccessful.