This is a question I often get asked: “Should I consolidate my debts into one single payment?”
To be honest, there is no easy answer. There are pros and cons to doing this and I’ll go through them briefly here:
Smaller monthly payment.
Often have lower interest than credit card debts.
Can determine a finite amount of time in which your debt will be paid off (unlike credit cards.)
Can reduce the overall cost of the borrowing.
Can make you feel like you have done something to reduce your debt when in reality you haven’t.
Does not address the root cause of the debt.
Does not provide you with a sense of progression or a reduction in the number of loans you have.
Can cause you to get further into debt as you “clear” the credit cards you may then revert to using them again. (CUT THEM UP!!!!!!!)
Ultimately it comes down to this:
Why are you doing it?
If you are doing it in order to feel like you are doing something to tackle your debt, don’t bother. The reality is that unless you start actively overpaying in order to bring down your debt you will simply move the debt somewhere else. You have not achieved anything. You may save £300 a year here or there but when you are tackling a £25,000 problem, that really does nothing. You need to start working extra and paying £300 a MONTH towards reducing it.
If, on the other hand, you are in complete control of your money and you are consolidating because it allows you to reduce the term of your loan or drastically decrease the interest costs associated with your loan, then do it, on the proviso that those interest savings are then paid back into the loan, thereby reducing the term even sooner in order to get you out of debt quicker.
Hope this helps,
They are unpredictable, unexpected and invariably expensive.
The only certainty we have in relation to unexpected emergencies is that they will happen.
At some point the car will break down, or the washing machine will stop working or the wind will blow tiles off the roof… Emergencies will happen.
The question is not whether they will happen but rather how will you be affected when they do.
Will you rely on your credit card and go further into debt or do you have a plan.
Personally I would recommend having £1000 put aside for exactly these occasions. That way you will not have to borrow money and pay extortionate interest rates to a bank for the privilege of dealing with your own emergency…
Take back control.
Set up an emergency fund.
Nowadays almost everyone needs a car.
What we don’t need is the newest car, the flashiest car or the most expensive car.
We have invested too much money into paying for more than we need.
We take out loans that take away our expendable income in order to pay for a car that gets us from A to B just as well as a car that costs less than a quarter of the price.
We have fallen for the lie that we will save money on fuel consumption while paying ever increasing interest on loans, leases and hire purchase payments.
Why not do what millionaires do? Save up and buy a car you can afford. Keep saving and within a short time you’ll be able to afford an excellent second hand car without having to pay interest or being in debt to anyone else.
The choices is yours!
I focus on three simple principles for tackling debt and, whilst they are simple, they are not always easy.
1. Stop the debt.
2. Minimise Expenditure.
3. Maximise Income.
They should be targeted in that order.
As soon as you put a stop to debt growing you have already won part of the battle. You are now no longer sinking and instead are swimming towards the surface, swimming towards victory.
Once you have done this (and this is often the hardest step despite being potentially the quickest to do…) Then you can start focusing on using what you have to start reading into your debt…
That’s when the excitement begins!
Every journey begins with a dream.
A desire to reach a destination as yet not seen.
A longing for the unknown to become known.
This is where we should start.
Take a few moments to vividly imagine living debt free.
What would you do with the extra income you would have without the debt repayments?
Where would you live?
How would you feel?
As you imagine these things, let the image play over and over in your mind and allow the dream to feel real.
The more you concentrate on making this dream a reality, the more focused you will be.
More focus means more intentionality and this leads to positive steps towards your ultimate victory.
So write down your dream and read your description every day until it becomes less of a dream and more of a future reality…