Individuals who take out a debt consolidation loan typically find they free up money each month. This money comes as a result of the lower interest rate they are now paying and a reduction or elimination in any late fees and penalties. However, having this money does not mean a person should spend it. The goal is to pay off the existing debt, and a plan needs to be made to ensure this is what happens. What steps should a person take to make certain the debt consolidation loan works as intended and allows them to get rid of their debt?
First and foremost, a person should either close their credit card accounts, hand the cards over to someone they trust, or freeze the credit cards. Closing the accounts can have a negative impact on the credit score, but this drop in score may actually be of help. It will prevent the debtor from taking out new credit until the existing debt has been paid down. Handing the cards over is a viable option but only if they are given to someone who won’t take advantage of having them in their possession. Freezing the credit cards is an option too, but the card can still be used to make online purchases if the person knows the card number, the expiration date, and the CCV code. Determine which choice is right for you. Many will find they need to take the drop in credit score to ensure they don’t take on new debt.
Develop a Plan for Paying Down Debt
If the debt consolidation loan brings the monthly payment down, use the funds to catch up on any other bills that are past due. Once this has been done, pay the debt consolidation loan off faster. Individuals who choose this path find they may be able to pay off the debt in the original time frame even though taking out the loan has extended the repayment term significantly.
Learn more about using a debt consolidation loan wisely be going online here. Don’t make the mistake of taking out the loan and running up new debt. Many do so only to find a bad situation has gotten worse. By borrowing responsibly and educating yourself, you can improve your financial future, pay off the existing debt, and have peace of mind once again.