The five golden rules for debt consolidation

For debt consolidation to work effectively, you have to have a clear plan of attack.

Set your goals and stick to them, this is the only way out of debt. Getting free from debt can be a long and hard process to go through, but it does not have to be. It depends on how you handle it. Here are five golden rules to take note of when taking the first step towards your financial freedom.

1. Make a realistic budget

Allocating money for debt payments, an emergency fund, and contributions to retirement savings, are typically included in a successful budget, but that isn’t enough when consolidating. Make sure you also budget for infrequent expenses, such as car registration fees, as well as times of the year when expenses run high, like the holidays.

TIP: Keep your budget strict but balanced

Ensure to always leave room for fun as restraining yourself extensively can eventually result in an outburst of spending. You have to always leave a little room for buying things you value and love.

2. Stop using your credit cards

If you wish to achieve the long-term goal, you’re going to have to stick to not using your credit cards as you pay them off. You have to take measures to ensure you avoid the temptation. Some methods might seem extreme but are proven to be very effective like cutting up your credit cards, locking them away, or freezing them in ice.

TIP: The best way to stay committed is to write down why you want to be debt-free and how you will achieve this goal.

Do thorough planning on how often you will make payments, and set reminders to check your progress.

3. Compare consolidation products

Consolidation works best for debts such as credit cards as they are high-interest-rate debts. Do your homework before applying. Compare different credit providers. Even though getting a consolidation loan from your bank might be easier as they already know everything about you, even though they might not offer you the best deal.

TIP: Shop around and make an informed decision.

When consolidating you will experience immediate financial relief and both the counseling and legal fees are incorporated into the debt restructuring plan resulting in you not having to pay any additional/upfront fees for your application to be processed. Legal fees are determined based on the type of debt you have and your monthly repayment. You can cut your monthly repayment by almost half when consolidating.

4. Improving your chances of getting a consolidation loan

Add up all potential sources of income as well as the money in your savings account and list that total on your application, not just your salary. Debt consolidation loans typically have lower interest rates than credit cards, and you can borrow more money. Your credit profile as well as the amount of debt you have can have an impact on rates. Only a handful of lenders offer this option. It is important to note that you have to have an income to get a debt consolidation loan. Having a severely bad credit score might prevent you from qualifying.  It can avoid the temptation to spend that cash instead of using it to pay off debt when having a lender that sends money straight to your creditors can remove the temptation

5. Enlist support for your goal

A lot of people might feel that debt is a shameful topic, but peer support is a powerful motivator. Always remember that most people in South Africa are going through the same or worse financial situation, don’t beat yourself up too much. You can make use of online and debt support groups, or a close family member can keep you on track to reach your goal. Some online lenders have tailored recommendations or apps to motivate borrowers.

TIP: Ensure you have helpers in place to keep you on track and hold you accountable.