Woman holding credit cards scared face

Do you ever hear those TV and radio commercials asking you if your debt is becoming overwhelming, and you hate to admit that it resonates a little too much? You’re not alone in this. Debt consolidation is a specialty of ours, and although it can end up saving you a ton in interest rates, it’s important to try other ways to pay down your debt, as well. First Mortgage Solutions wants to share some of those alternatives, as well as what a debt consolidation loan can do for you.

Before we get started though, two things. One: this journey will be tough and will require self-discipline. Two: it will change your life, both in good and possibly difficult ways. Just as it’s much easier to gain weight than lose it, it’s the same for getting into debt and getting out of it. Full speed ahead.

#1: Change Your Outlook

This is quite possibly the toughest part of the entire process, and will continue throughout your lifetime.

We’ll use the weight analogy again: Junk food is easy, more accessible and satisfying to most people. Eating healthy is often boring, time consuming and costlier. The same can be said about spending and saving. “Stuff”, “things”, “material goods”– they’re everywhere. And who doesn’t love the latest gadget or something sparkly to show off? There’s nothing wrong with a cupcake every now and then, but when you’re spending way more than you are saving or even making, it can’t be sustained.

Saving feels boring; it many times leaves us wanting something more satisfying. Just like losing weight, it takes a lot of time to save a little bit, and that’s frustrating. It’s unreasonable to expect overnight results, but eventually the numbers start to add up. Ten dollars a week turns into $520 a year, and $1,600 in three years.

Getting out of debt starts by changing your spending and saving habits, and being willing to give up “things” you don’t need. The payoff? No more stress.

#2: Cut the Cards

Get out all of your store cards and cut them up. Keep your longest activated bank credit card, and cut up the rest. You don’t have to close the accounts, and it’s good to double check that you won’t get hit with fees for no activity. Starting this new way of life without temptation will help you in the long run. You wouldn’t stuff your cabinets full of Oreos when you’re trying to eat healthier, right?

#3: Get a Plan in Place

Now that your cards are cut up and you’ve removed as much temptation as possible, it’s time to start paying it back. Focus on your smallest debt first, because getting that first loan paid off will feel great and motivate you to keep working.

As soon as you get your next paycheck, do two things:

— Put three percent into your savings account

— Put ten percent towards your debt.

If you can’t do that due to mortgage or car payments, it’s time to downsize. No, seriously. Your housing costs, including utilities, insurance and taxes, shouldn’t be more than 25 percent of your income. No more than 20 percent should go towards your car, including paying for insurance. If you split these costs with a spouse or roommate, consider your personal contribution as your total.

Once you have an idea of your actual monthly budget without spending on the extras, you’ll soon find you can afford to start paying back much more than you currently are.

#4: Debt Consolidation Loans

It’s time to consider a consolidation loan when you are paying enormous interest rates on the debt you have. Loans for education and cars aren’t typically high and don’t fall into this category. Store credit cards, bank cards, personal loans, payday loans and the like usually tend to have very high interest, though. Let’s look at an example:

Your Current Situation

— $250K mortgage at 4 percent: $2,000 monthly payment
— $5K on a credit card at 12 percent: $450 monthly payment
— $7K on a store card at 14 percent: $600 monthly payment

Total: $262,000 debt at a $3,050 monthly payment

Debt Consolidation Loan

— $262K mortgage at 4 percent: $2,100 monthly payment
— Credit card and store card paid off in mortgage: $0 payment

Total: $262,000 debt at a $2,100 monthly payment

Not only do you drop the high interest rates, but you spread your payoff over a much longer period of time, roughly the span of your mortgage. Since you’ve cut up those cards, you can’t rack up the balance once more, and your payments suddenly become much more manageable.

Getting a debt consolidation loan isn’t making the problem worse; it’s being smart with your money. But it’s easy to fall back on bad habits once the stress of your debt is downsized, so we recommend making healthy spending and saving habits a part of your life before taking this route. Once you’re feeling good about your bank account, we’re here to help you get started on the road to redemption!

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