In addition to offering a lower interest rate, debt consolidation can also lower your monthly payment. A loan term is the number of months or years you have to pay off your debt. Generally, the longer the loan term, the lower your monthly payment.
Debt consolidation is not a permanent solution. It offers you the chance to lower your past debts, but it will not prevent you from getting into debt in the future. Only you can practice smart borrowing habits to prevent debt emergencies.
Reducing your debt is an important first step in changing the way you think about your finances. But it’s only the first step. Lowering your debt through consolidation, balance transfers or personal loans is a temporary fix to a more dangerous problem. It’s up to you to monitor your spending and borrowing habits so you can avoid racking up debt in the future.
It’s easy to get in over your head if your spending goes unchecked. To prevent a debt crisis in the future, it’s important to practice responsible spending habits and create a budget for yourself.
Millions of Americans have some kind of debt, whether it be credit cards, student loans, personal loans, auto loans or other large purchases.
A swipe here, a purchase there – that’s all it takes for a snowball to become an avalanche of debt.
To prevent a debt emergency, it’s important to become a responsible spender. There are certain habits you can instill that will help you categorize your expenses into things you need and things you want.
There are certain unavoidable expenses, like food, shelter and clothing. But you may find areas where you can cut your spending and reduce your debt.
A “want” is something you don’t need to survive but is nice to have. These include things like:
- Music and movie streaming services
- Entertainment subscriptions like video game memberships
- Everyday luxuries like restaurants and other impulse buys
- Gym memberships
- Hobby-related subscription services like HelloFresh and Stitch Fix
The easiest way to gradually reduce these debts is to remove your credit card information from online shopping services. This will prevent companies from charging you monthly without you realizing it.
Reducing the amount of “wants” that you pay for monthly can greatly reduce your debt-to-income (DTI) ratio, which is an expression of the money you pay versus the money you earn. It may be hard at first, but it will become easier when you see the extra money in your bank account.