debt consolidation financing

Unless you are a financial masochist, having more than five kinds of loan accounts in your financial statement and an income stream that leaves no room to breathe is definitely not a pleasant way to maintain your state of affairs. Home loans and auto loans have interest rates that fluctuate depending on market conditions. Credit cards, even when they advertise low monthly interest rates, charge interest over and over on your remaining balance when you do not pay off your outstanding balance.

Student loans become due almost all at the same time when you get out of college and start working. All these loan accountabilities could be too much for the average Joe to handle especially in such financially trying times as today. Consider debt consolidation financing as a solution to ease the pain that is growing in your pocket.

When you go for debt consolidation financing, you put together several of your loan accounts into one consolidated loan. Debt consolidation financing works by taking out one loan and paying off your existing loans. The pay offs, of course, are handled by the debt consolidation companies.

You are then issued a statement of account by the debt consolidation company reflecting the total amount of your loan, which is the total amount they paid to clear out your other loans, the monthly interest rate, and the loan tenor you agreed upon with your debt consolidator. You might find that the interest rate for your consolidated loan is higher. But, this is often the trade-off that you will have to deal with if you want to have a more manageable loan portfolio.

Debt consolidation financing is not the end of all your financial responsibility. This is only one solution to the accumulating multiple loans in your loan portfolio. There is still much financial discipline that is required of you for you to be able to manage your personal finance well. Remember that you are not erasing your loans with debt consolidation. You are merely transferring your loans in a more reasonable and more manageable debt instrument.

You will still have to come up with your monthly payments. Since you have consolidated your accountabilities into one account and lengthened your payment terms, you should be able to successfully manage your monthly payments. There is no more reason for not meeting your due dates – part of the process of getting into debt consolidation is matching your income stream with your monthly payable amount.

The more important thing to do after you have availed of a debt consolidation financing facility is to make sure that you maintain sound personal finance. Here are some guidelines that you could follow to avoid falling into the same trap again:

1.Stop getting into any more debt. You should be wise enough not to get into another debt instrument after you have consolidated your loan accounts. No more borrowing money especially in instruments that charge horrendous interest rates.

2.Stop mindless spending. Do not spend what you do not have. This is especially true of credit cards. If you have already consolidated your credit card accounts, do not go out and get a new credit card to start spending with.

3.Work on a budget. Match your income with your spending. You know how much money you are going to receive at the end of the month. List down your payables, household expenses, and daily expenses. Do not forget to budget to save as well. If you can, take out a certain percentage of your income for your savings. Put this savings component as part of your budget. This way, when emergency expenses arise, you have a fund to dip into instead of taking out another loan.

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