Living with Debt without worries – How Debt Consolidation can Help?

Easy availability of loans and other options of financing available to individuals have made it very difficult to deal with loans in a restrained manner. Credit cards especially make it appear that availability of money for fulfilling wishes is never a problem, which it truly is but the problem starts when you max out your credit and start borrowing from many other sources. Suddenly, you find that monthly payments that had been manageable so far turn into unmanageable debts.   The same can happen for businesses that engage in over borrowing and become debt-ridden in no time, not knowing how to get out of the problem. Since loans are the backbone of business financing at all stages of business, depending on loans for maintaining smooth operations and business growth is a necessity as it helps to streamline cash flow. 

debt management
Credit: LendingMemo

When you are neck deep in debts, it seems that the debts keep staring at you and it leads to a situation when you are unable to make timely payments, and the burden of debts keeps piling up rapidly. Debts which had seemed of immense help at one point in time suddenly make you feel sick, and you desperately look for ways to get out from the vicious cycle of debts. Doing some firefighting by trying to knock off the larger debts first might provide some temporary relief, but soon it seems to be just not enough to address the main problem. Not knowing what could be the best way to keep debts under control leads to further stress that can have damaging effects on your credit score and financial future.  It might lead to businesses filing for insolvency and going bankrupt, and the same can happen for individuals.

Customized debt relief plans

In such situations, knowledge about various methods of debt relief should come in handy.  Debt management needs specialized knowledge, and the professionals of debt management companies like Nationaldebtrelief.com can help you a lot in this matter. Debts are debts, but the methods of debt relief are many that depend on the analysis of the situation faced by individuals or business. Understanding the pain points of borrowers and their financial capabilities are essential to draw a proper plan for debt management. It means that no two debt relief plans are the same because of its customized nature that takes into consideration the best interest of borrowers.  

Seek advice

Debt-stricken individuals need sound financial advice that provides the much-needed support and direction in debt relief. In most cases, dealing with too many lenders and managing too many loan accounts becomes a stressful task and, in such cases, debt consolidation is the ideal solution for debt relief. Remember that borrowers would always welcome any move that helps to manage debts better because they want to continue with debts to stay afloat and manage their finances better.  Understanding the options of debt consolidation and knowing about the best practices should give you a boost towards better debt management.

Evaluate your debt first

Self-evaluation is most important in your journey of debt relief. If you know what you are up against it is like winning half the battle. Consumer debt is always very high in the US, and it peaked during the recessions that started in 2008. Therefore, it is not unusual that individuals carry several debts spread across different accounts and lenders. From credit card debts to student loans and from car loans, and personal loans to taking loans for paying excessive medical bills mostly unplanned – so many different types of debts often become necessary to bolster finances in the short term. When seeking debt relief, you must first understand where you stand in terms of outstanding debt by looking at each loan account closely and then use an online debt consolidation calculator to work out a plan of plugging the gaps effectively.

Make a comparison

The focus must be on the balances you owe, the monthly payments you make and the rate of interest that you bear.  If you have some loans with fixed payback period, you must find out the remaining tenure of the loan. For credit card debts, you must base your calculation either on the monthly payments that you have budgeted for or the minimum amount that you must pay for the outstanding amount.  Using a debt consolidation calculator should help you to not only add up the outstanding balances but also provide a comparison of your loans in a consolidated manner.

By using the data, you can paint a picture of your financial future by comparing your present with the possibilities that lie ahead if you go for debt consolidation. The debt consolidation calculator will work out a monthly payment figure by considering that you will take a fresh loan at lower interest than the weighted average of the current interest rates and effectively your monthly payment would go down considerably.  The calculator will also show the time it will take to pay back the existing debts at the current rates and the time that it will take to repay the new loan which will obviously be shorter.

On completion of the exercise, you will have a firm understanding of the extent of debt you are currently having and the amount you are paying just to stay afloat.  Most importantly it will reveal the numbers that tell you about the prospects of consolidating the loans that lower monthly payments and generate savings too.

Control expenses to plug the gaps

Debt consolidation helps to resize the debts and at the same time replace several lenders with just one. However, you must ensure that you can make monthly payments which often people fail to make due to heavy expenditure. Keeping control of your expenses is extremely important to maintain the right cash flow so that you can make monthly debt payments in a disciplined manner.  Debt consolidation gives you the opportunity of rebuilding your finances by learning important lessons about your borrowing habits that largely depends on your spending pattern. If you are a reckless spender, it is natural that you will keep taking loans and stressing your finances. Therefore, being careful with expenses by spending judiciously should help you to keep debts under better control.

Define and monitor the monthly spending by its nature like housing, food, transportation, insurance, entertainment, healthcare, cash contributions, apparel and services, and other expenditures. The exercise could be an eye-opener for you as you can figure out the potential areas of over-spending and identify the areas where it is possible to cut back. You get the guideline for long term sustainability even after you pay back debts.

Take a debt consolidation loan

Debt consolidation loan like housing or car loans are special because unlike personal loans or credit card loans that do not have any specific purpose of use, debt consolidation loan is for the exclusive use of settling previous loans and equivalent to the amount of outstanding loans on a particular date.  By using the services of debt relief companies that specialize in debt consolidation you can get in touch with lenders who are ready to offer debt consolidation loan.

The debt consolidation company mediates on your behalf with lenders by building a case that justifies your stand to use the new loan for restructuring your debts.  By using your credit report and credit score that the debt consolidation would ask for, they would justify your stand to borrowers for securing the loan easily. You can get a free credit report every year from any of the credit rating agencies like Equifax, Experian, and TransUnion.

New credit for debt payment might not be necessary

By assessing your current financial position with due consideration of account and all liabilities in addition to the debts you are well placed to weigh your options in debt consolidation and create the right strategy for debt relief. Accessing new credit for settling earlier debts might not always be the only or best option for you. You might have the powers of paying the debts without further borrowing, but you are just not aware of it.  Doing your arithmetic once again and reworking on your budget could help to realize funds that you can use for paying back debts.  If you are ready to make some sacrifices by controlling your monthly expenses, you could discover a newfound financial power that helps to pay back debts without seeking new credit. Once you identify your strength, you can re-negotiate with lenders and ask for a lower interest. Credit counselors can guide you in this matter so that you can achieve your goal.

Whether you take new credit or not, consolidating loans, provide considerable relief because you deal with a single lender that is always easy to manage.  It does away with the stress of monitoring multiple debts that entail different payment dates, different interest rates and handling different lenders that often become too much strenuous.  You can start a new journey in managing your finances and use the lessons learned earlier that makes you a wiser borrower who knows how to live with debts without worrying.

About Mohit Tater

Mohit is the co-founder and editor of Entrepreneurship Life, a place where entrepreneurs, start-ups, and business owners can find wide ranging information, advice, resources, and tools for starting, running, and growing their businesses.

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