How To Consolidate Debts
Deciding to consolidate debts may be the very best decision you can make. The compound interests exploding on your credit card debt should hurry you to face the music squarely.
Reducing debt is one thing and to consolidate your debts is another thing. Together, if done with careful planning and tons of sacrifice you can get over this financial setback albeit through a number of years.
How do you consolidate debts?
The best way to do this is to refinance your mortgage. To know how much you need, look at the numbers and sort them out according to the type of debt.
That car loan, mortgage, and personal loans should be listed down and no matter how it hurts, sum it up to get your numbers straight. Add to the figures the interest rates on each debt, the balances for each debt, and the monthly payments you make for all these.
After you have the numbers, list down your monthly expenses. Add your monthly debt payments and your monthly expenses and deduct the total from your monthly income. If theres no way you can survive on the remaining amount, refinance your mortgage to pay off those debts in one sitting.
Strategy 1: Transfer credit card balances
If you want to reduce debt not consolidate debt, you have several options at hand. You can transfer your credit balance to another credit card issuer to avail of the zero interest rate for one year. During this period pay off the balance and only use the credit card for emergency purchases.
Once you miss a payment or find yourself behind the past due date, your troubles will again begin, defeating your purpose of transferring your credit card balance. Choose the credit card with the lowest APR on balance transfers. The APR indicates how much you will pay yearly on a credit card debt.
Strategy 2: Pay more than the minimum
Dont hesitate to pay more than the minimum. It is surprising how debts disappear fast when you do. Paying the minimum takes years of payback and is more expensive considering the interest rates. If you add an additional $100 on your minimum for a credit card balance of $6000, you reduce the number of years for payback. Instead of enduring 16 years of payback time, you reduce the number to eight.
Strategy 3: Pay off the high balance bills first
The interest that accumulates on credit cards with highest interest rate can be shocking. Pay these off first because these can bleed your dry. Once the debt has been eliminated, attack the lower interest rate credit cards. You can feel a huge weight slide off your back each time you eliminate a credit card debt balance.
Strategy 4: Stick to your budget
As long as you are sticking to a budget, everything will go smoothly. But plan realistically because whether you like it or not, there will be unavoidable expenses. So forget that $500 wallet and keep track of your money and cut back on unnecessary expenses. Little by little, you will inch out of that credit card debt hole.
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