It is much better than hiring debt consolidation companies that convince you to pay your debts using a special account which is only accessible to them. You wouldn’t be able to trace if you have already paid off the loans or not. While they may negotiate with your creditors to reduce the amount of principal that you have to pay off, it can put your credit in jeopardy when the company turns out to be a scam. So how can debt consolidation loans help to avoid debt?
Here are the common causes of debts and tips on how you can use your debt consolidation loans wisely to address them:
Failure to manage money wisely
When you consolidate a loan, remember that you still have a huge loan balance to repay each month. You did not eliminate all your debts, but you simply rolled them into one convenient loan. So, it is advisable to create a monthly spending plan that you can follow. Make it realistic enough and don’t deprive yourself too much. Otherwise, you may rebel on that thought and break your own rules altogether.
A good spending plan helps you meet your daily needs and gives you enough allowance for emergency costs. If you know where your money is going each month, it will be a lot easier for you to avoid spending on unnecessary items. To guide you in a making a spending plan, simply collect all your bills in the previous months. Get an average of all your expenses as well as your income. Reconcile those two by allocating a certain portion of your income to pay for those expenses.
Don’t forget to put money into your emergency fund so that you have something to rely on when unfortunate events happen. It can be as simple as a car that needs repair or damaged computer. But, if those things are indispensable to your business, you need to have an easy access to fund when you need them.
Low income
Unemployment and underemployment are the common causes of low income. If you have been out of work for several months, it is difficult to keep up with your loan repayments, but as you default on each loan, your interests increase as well as the other loan charges. So, while you are at it, make sure that you consolidate your loans to stop those interests from accumulating. By doing so, you can devote your time looking for additional job or in establishing a small business that will help you earn money from your passion, interests or hobbies.
When you start earning from your business, make sure to align all your expenses with your income. Remember that you have a loan to pay and it will not be wise to use your credit cards all over again. Stick to your spending plan until you have fully paid your loans or until your income increases.
Financial illiteracy
How literate are you with money? If you don’t know how money grows then it is so easy to sabotage it from growing any further. Many entrepreneurs focus on generating profits based on their business-related activities, but they fail to put the same amount of efforts in growing their profits. That’s why many businesses don’t have a back-up plan when a crisis strikes. They don’t have enough emergency funds, no investments that could sustain losses and no substantial asset that they could leverage to get back on track.
Take a good look at your credit report and track all your debts in the previous months. Next, look at your savings and checking accounts and see how much you have left. You can also conduct an internal audit to know how many assets and liabilities you have. Then, evaluate your financial status. Do you owe more than you currently own, and if you have more debts than savings at the moment? If your debts are pulling down your finances, consolidating your loans can help you deal with that issue. But, always try to learn as much as you can about how money grows. Look for ways to save and invest not only for the rainy day but for your future as well. And, don’t forget to balance your chequebook. It will keep you on your toes—and prevent you from spending too much on things that you don’t really need at the moment.
Contact ALC commercial to know more about our debt consolidation loans and how they can help you to avoid debt.
