Debt Consolidation Strategies: Tips on Paying off your Debts
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Debt Consolidation Strategies: Tips on Paying off your Debts

Debt Consolidation Strategies: Tips on Paying off your Debts

Debt is just a four-letter word, but it can cause a lot of difficulty and jeopardy in one’s life. It is always better to remain debt-free, but there is no denying the fact that sometimes the financial situation might be such that it might become inevitable. Most common reasons for loans generally include an education loan, personal loans, housing loans, and credit cards. The worst part about them is the extra interest amount that you have to incur to repay your debt.

There are two main strategies for debt repayment- debt settlement and debt consolidation. As the name suggests, debt settlement is paying off a large amount of money towards loans So that either the rest of the amount gets forfeited due to the number of reasons or your financial burden reduces substantially. The other part, debt consolidation, has been discussed here in more details.

Understanding consolidation

First of all, it is imperative to understand what exactly is consolidation. It means taking a single loan, consolidating all your other outstanding loans into one, based on the best interest rate provided by them. Banks and credit card companies itself generally provide these consolidation loans, but there are certain specialized faculties for this purpose as well. Mathematically looking at it, the final interest amount that you have to pay will be lesser than what you would have paid for divided loans, and you will be free of the hassle of keeping track of multiple debts. The disadvantage is the fact that your credit score might get hampered marginally and the minimum amount that you have to pay monthly might look a little escalated. It is best to check your credit and get a proper debt review done before you decide on debt consolidation.

Pre-steps for applying for debt consolidation

Selling off assets and settle debts

If you feel that you have some disposable assets that you can do away with and use that amount to settle off at least a part of your debt, you should go ahead with it. Having a financial burden can affect your physical as well as mental health, so it is always better to keep it to as few as possible.

Do cash flow management

When you have a stable job or a constant source of income, it is important that you channel it to the proper places at the right time.

If you do not pay the minimum amount of your debt, it affects your credit score, and the next instalment that you have to pay will be much higher. Instead, you should always maintain a proper flow of cash so that there is no issue with the repayment as such.

Creation of financial inventory possessed by you

This is more of a systematic approach of the aforementioned point. You should create an inventory related to your finances where you keep track of all your income and expenses so that you can plan the method of repayment in a better manner.

How debts affect your credit scores

Revolving debt

The first kind that is generally considered riskier are credit cards, and they come under revolving debt as it is a monthly affair and the amount varies every month. You have to be very careful about your credit card bill as the upper limit is pretty high by so is the interest rate, and the payback will be much higher than the principal amount.

Installment debt

these are the loans that have a predetermined amount to be paid every month, and it does not vary according to time. It includes personal loan, housing loan, car loan, etc. Their interest rate is also low, and the debt is repaid in an orderly fashion.

Debt consolidation strategies that work

Approval for a debt consolidation loan

When you apply for a debt consolidation loan from a bank or specialized union, credit evaluators calculate your credit score, interest rate, paying amount, mortgages, etc. They approve the loan once all of it is found to be suitable and agreeable to both parties.

Which bill to tackle first?

There are two schools of thought in this aspect. According to the avalanche method, pay off the highest loan amount with an increased interest rate first and then proceed downward. Another theory is the snowball method in which you clear off the lowest amount first and then immediately concentrate on the next. Consult an expert for the best strategy for you.

Transferring balance towards a lower interest rate

This is the logical thing to do as you would not want to pay a higher amount of interest for a loan amount. Therefore, consolidate all your loans to a bank which offers lower interest rates.

Go out and ask for the amnesty

Amnesty, in general, means pardon. In this particular scenario, it means that you ask organizations to overlook your poor credit score, which stands there due to some reason, and approve a consolidation loan so that you can get your business back on track.

Final thoughts

You may have been in an emergency, which led you to take some loans with higher interests. But, when you have the option of debt consolidation available, you should make proper use of it. It will not only pay off your amount but also do so at a rate which is more conducive and favourable to your situation.


Hassan is a Blogger, Author, Entrepreneur and the Administrator of He heads Burgeoning Technologies, a Web and IT Company and manages several other blogs and websites. He can be followed on , Twitter and Facebook.