Should I Consolidate My Debts and Loans

Most Common reasons why people go in debt

  • College costs: In 2016, the average graduate left college with $37,172 in student loan debt. This total is exponentially rising for both private and public college-educated students. Interests rates and late repayments add on even more cost to this value. 
  • Poor insurance: Ironically, debt can be the root of many physical and mental health issues. Therefore, insurance is one expenditure that is imperative to budget into your financial plans. Investing in the protection of your health can save you in more ways than one. 
  • Chasing a lifestyle: Nowadays, our social media feeds are full of friends and family enjoying expensive meals or holidays abroad. It is easy to feel pressured to also show this lavish lifestyle, but in doing so, you risk more chance of living the opposite trying to keep up excess leisurely spending. 
  • Gambling: Around 4 million people in the US have a gambling disorder. Even worse, 23 million people in the US have faced problems with debt due to gambling. It is important to enter casinos with a responsible mind and a budget to prevent life-altering costs to your wallet and mental wellbeing. 
  • Insufficient Savings: Setting up an emergency fund is an essential part of personal finance. Try to put aside extra change or a small percentage of income every month to slowly grow a safety blanket in unexpected times of need.

What is debt consolidation and should I do it?

Debt consolidation pays off numerous debts into a single payment. In addition, if you can get a lower interest rate, you may be able to reduce your total debt and pay it off faster.

However, debt consolidation should not be seen as a solution if you are overwhelmed with debt or have debt which can easily be paid off. As a rule of thumb, your total debt should be less than 40% more than your gross income. Increasing the chances of successful debt consolidation requires building good money managing habits, like setting up a repayment plan and ensuring your incoming cash flow can cover these repayments.

There are multiple ways to consolidate your debt, however you will most likely need a good credit score to qualify. In addition, having a good credit history also increases your chances of qualifying for a loan with zero to low credit.

Tips to get out of debt

  • Organize your sources of expenditure: Gather any financial information to gain a complete picture of where your potential problems and opportunities lie. This can include your most recent bill statements for any loans, credit reports, and knowing your credit score. Unknown sources of debt can easily slip under the radar. 
  • List your debts and income: Keep track of how much you owe to work out how much money you need to repay your debt. Remember to consider ad hoc sources of expenditure such as family loans and monthly subscriptions, and groceries. Your creditor, current balance, minimum monthly repayments, and interest rates may also affect your debt total. 
  • Lower your gained interest: Debt accumulates over time. So, the more you owe the more interest you’re charged with. Minimize your interest by finding the lowest rates available when looking to apply for a new credit card, loan, or repayment plan. 
  • Decrease Expenditure When Possible: Keep track of monthly costs and see where you can save money. For example, save on household bills by shopping for affordable PA electricity rates. Cancelling unused gym subscriptions or sharing entertainment subscriptions with friends also saves money.

ConclusionPaying off debt takes time. Improving personal finance is a lifestyle change and can only be achieved by consistently making responsible borrowing decisions and exploring repayment plans, like debt consolidation.

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