If you have several debts that you are working to pay down but find yourself scrambling to make sure you don’t miss anything, a bill consolidation loan and app can help. However, it is important that you note the amount that you are transferring and avoid taking on additional small debts while you pay down this larger loan.
Benefits of Consolidation Loans
A bill consolidation loan can help you to
- reduce the interest rate if you have credit card debt
- avoid late fees if you might miss a payment
- build a simpler budget
With a debt consolidation loan, you will still owe the same amount of money as you did previously. This is not a bill settlement program. However, with all the debts rolled into one, you can more easily make the payments and manage the rest of your income.
High-interest credit card debt can be exhausting and create a lot of stress. Getting calls because you were busy and missed payment is also frustrating, especially if you had the money in the bank. By rolling your debt into the right consolidation loan, you can make just one payment per month.
Risks of a Debt Consolidation Loan
If you are using a debt consolidation loan to wipe out high-interest credit card debts, review the cards that you just paid off. If any have an annual fee, cancel them to avoid that expense. If they don’t, keep them active but put them away so you don’t use them. Consolidating your debt is only effective if you don’t add to it.
Now that you know what your monthly payment will be, set up an account at a credit union that offers free checking and debit card use. Use that instead of credit cards to buy your necessities. If you have a history of challenges using a credit card, change things up and go back to cash for your
- weekly consumables shopping
- rent if you have a drop-off
- utilities if not already on autopay
Working with cash forces your brain to think about money a bit differently. You may need to make a few more stops each week, but you may find that you have more money at the end of each month after you go back to cash.
Applying for a debt consolidation loan may be a hard pull on your credit. If your rating is in rough shape, apply with care.
Where to Get a Consolidation Loan
The simplest form of loan consolidation is the credit card rollover. If you can get a card that offers 0% APR for an extended stretch of time, you will likely have to pay a small fee, but you can roll many smaller cards onto a bigger one to save hassle and time each month. Before you do this, make sure you know what the total debt will be and that you can pay it off within the time allotted.
Having a credit card debt that is close to the max is hard on your credit. You can also get a personal consolidation loan from other sources, but you should be prepared to pay higher interest on that debt.
Once You Have Some Breathing Room
Once you have a consolidation loan in place, take a breath and look at what got you to a place where you needed a consolidation loan. If your ability to earn took a hit during the pandemic, look for ways to increase your number of revenue streams. The term of your consolidation loan could serve as the time you commit to taking on a second job.
Commit all the dollars from the second job to the debt. While you are pushing hard on that, take a look at your spending habits and when you tend to go overboard. If you overspend on the weekends, look for ways to earn at that time. If you love to eat out or get a drink with friends and tend to blow the budget then, cut back to every other weekend to make the event more special and protect your cash flow.
A bill consolidation loan, properly managed, can be incredibly freeing and save you a lot of interest. Put this tool to work only when you are sure that you will not overspend once you have some financial breathing room.
Author: Allison Lurie