Debt consolidation is debt management and repayment strategy that enables people with multiple debts to pay back what they owe. It consolidates all debts into a single loan, which can be repaid on longer terms and more affordable monthly dues.
A debt consolidation plan is logical, but it can be challenging to follow through. You need to stick to a fixed budget, for starters, and change habits that will be counterproductive to your debt consolidation plan in Singapore.
Below are some tips on how you can make your debt consolidation a success.
1. Always pay on time.
Signing a debt consolidation plan means you approve of and can pay your debt according to the plan’s payment terms. Quite simply, there’s no reason for you to miss a payment. If you do, late payment fees will apply and bloat your due bill for the next month.
It’s risky to miss a payment when your financial situation is precarious, to begin with. If you’re working on a very tight budget, you can’t afford to have more fees added to your monthly payments. The only way to avoid that is to pay what’s due for your consolidated loan on time each month.
2. Reduce your spending.
A well-planned budget is crucial when you’re under a debt consolidation plan, but what matters more is that you follow it through.
On weeks when it’s difficult to stick to the budget, one strategy can help you stay on track, and that is to reduce your spending where you can. Assess your non-essential spending and identify the things you don’t need, like monthly subscriptions to lifestyle magazines and loot boxes. Discontinue your subscription, and you’ll have a bit more to spend on essentials and more worthwhile things like your insurance premiums, food, and birthday gifts to your family.
As for essential services like a mobile phone plan and home Internet, assess your usage and see if you can downgrade to a cheaper plan that can still meet your needs.
3. Use your bank-issued credit facility sparingly.
If you applied for debt consolidation from financial institutions, you may also get a credit facility (also called a revolving credit facility) with a fixed credit limit equal to your monthly income. Banks provide this in place of your existing credit cards (when you go into debt consolidation, you’re no longer able to use your credit cards or any other unsecured credit facilities).
Use this credit privilege only for important situations. If you start making unplanned purchases, you could exceed your budget and undo all the planning and hard work you have so far put into your debt consolidation.
Keep in mind that like a real credit card, the credit facility attached to your debt consolidation plan has fees and interest rates. If you don’t pay your credit at the end of the month, the fees will apply and add to your debt. This is counterproductive to the purpose of debt consolidation because you now have to set aside a bigger sum for your debt. The excess will also eat into the other allocations for your budget like food, utilities, or phone and Internet bills.
One careless purchase using your credit facility could put you back in an unhealthy debt cycle, so avoid it as much as possible.
4. Don’t go out and get busy at home instead.
Unnecessary trips to the mall, food strips, bazaars, and the like can tempt you to spend outside your budget. Help yourself stick to it by avoiding the places and establishments where you’re easily tempted or talked into buying something.
Consider also the true reason why you want to go out. Are you simply bored? Then you should know that boredom is a trigger for impulse buying. Shopping and buying something you like gives us a happiness boost, which becomes an unconscious coping mechanism for boredom.
Get busy at home to cure your boredom and avoid spending out of turn. Do the things you’ve been putting off, like cracking open the DVD sets you previously bought, or finish the arts and crafts or home improvement project you started a month ago.
5. Take care of your health.
Medical emergencies can destroy a budget, especially if you need to check into a hospital. Medical costs have already been predicted to increase by 7.1 percent in 2020, and that was based on data gathered before the COVID-19 pandemic.
An ordinary bout of cough or colds can be managed with rest and home remedies, but we’re learning now that these harmless ailments could be something much worse. This matter is not just about saving money; a healthy mind and body are rewards you can enjoy for a lifetime.
Take these tips so you can power through your debt consolidation plan until it’s finished. It may be difficult at the beginning, but with discipline and hard work, you can soon be debt-free.