Bundling variable rate credit cards into a fixed rate personal loan can help you pay off debt faster, lower your monthly payments and save money on interest charges over time. But at the same time credit card consolidation is a popular way to settle debts, it may be tempting to increase your credit limit again after paying off the balance to zero.
“If you consolidate your credit cards and keep spending the same amount as before, you’ll end up in the vicious cycle of credit card debt,” said Ryan J. Marshall, a certified financial planner (CFP) based in Wyckoff, NJ.
Keep reading for tips on how to stay debt free after consolidating your credit card. And if you’re considering paying off your credit card debt with a personal loan, it’s important to seek the lowest interest rate possible for your financial situation. You can visit Credible for compare personal loan rates for free without affecting your credit score.
Create a strong emergency fund
A emergency savings fund can help you avoid high-interest credit card debt when you’re faced with a job loss or an unexpected expense, like car maintenance or home repairs. Zachary Bachner, CFP in Sterling Heights, Michigan, said your emergency savings should cover about three to six months of living expenses.
“Setting aside those savings will allow you to pay for any unexpected expenses and save you from having to charge the expenses to a credit card or possibly a personal loan,” Bachner said.
Increasing your savings may seem like a difficult task if you’re already struggling to balance your budget, but it doesn’t have to be. Setting up automatic transfers from your paycheck to your emergency fund can help you boost your balance without even thinking about it.
“Ask your employer to send money directly to your savings account, so you don’t see there’s money to spend,” said Texas-based CFP Jordan Benold.
Another strategy is to put your emergency fund in a high-yield savings account that grows with time and interest. You can visit Credible to compare savings account rates on several banks at the same time.
Track your spending habits with a budget
According to Marshall, debt consolidation is the easiest part of achieving a debt-free lifestyle – “The hardest part is the behavior of setting a budget and sticking to it.”
Create a sustainable budget can give you valuable insight into managing your money, so you can identify areas where you might be overspending. You may find that you are spending more than you earn, which can be the cause of credit card debt.
“By limiting your spending, you can remove the need for debt on a monthly basis,” Bachner said. “It’s important to track every dollar of income and match it to an expense or savings goal.”
To get a better idea of how you manage your finances, enter a few months of bank statements into a spreadsheet. There are also several free budgeting apps like Mint and Personal Capital that can help you automatically. track your purchases by logging in securely via your bank.
Look for ways to increase your income
Inflation rose to a record annual rate in 2022 so far, which means the money you earn loses purchasing power over time, according to Greg Giardino, a CFP in Tarrytown, NY. Because cutting your expenses may not be enough to help you offset the impact of rising consumer prices, it may be necessary to increase your monthly income to avoid incurring more credit card debt.
However, it is not practical for all breadwinners to take on a second or third job. Less time spent at home can mean higher child care costs or other additional expenses. Before you start looking for side gigs in your local classifieds section, start by ask for a raise in your current position. When negotiating for a higher salary, do your research to see how your earnings compare to others in your industry to use as a benchmark.
In some cases, you might consider applying for a higher paying job. A recent survey from the Pew Research Center found that many American workers who left a job in 2021 were able to find a new job with higher pay. By changing careers, you may be able to earn enough money to fund a debt-free life.
If you’re struggling with higher credit card balances due to inflation, you might consider debt consolidation with a personal loan at a lower interest rate. You can learn more about credit card consolidation by contacting a knowledgeable Credible expert.
Do you have a financial question, but you don’t know who to contact? Email the Credible Money Expert at [email protected] and your question might be answered by Credible in our Money Expert column.