Ease your debt burden through consolidation

Access to credit has made life easier and in many cases a lot better for most people in general. But while there are many positives associated with using credit, there can be a downside.

It is easy to let your credit card balance creep up, and before you know it the bank has kindly increased your limit. Before you know where you are, you’re up to your eyeballs in repayments and your cash flow is getting tighter.

When debt starts to spiral, it’s imperative that you take decisive action if you’re to regain control. The first action must be to address your spending habits to ensure that the debt does not continue to climb at the same pace.

With a tighter grip on your spending, your main focus should be on reducing the debt levels on your credit card, as this is where you are likely to be paying the highest interest.

It can be tempting to take out another credit card with a lower rate, but be warned: if you don’t close down your existing cards, you’ll simply magnify the problem.

It is better to focus on reducing the outstanding amount, and that means saving more than you spend each month.

The most effective way to achieve this goal is to set a budget. This will help establish what your fixed costs are, such as your mortgage, school fees and utility bills. You can then look at what’s left and decide where you can pare back.

With a simple strategy in place, and a goal to strive for, you should see your situation begin to improve. And the lower your debts are, the less interest you’ll pay out each month – and the greater amount you’ll be paying off the debt itself.

There are instances, however, where it may be more effective to look at restructuring your debt in conjunction with implementing a budget.

If you decide to take this approach, make sure that you look for a loan that will offer you a far more competitive rate than a credit card.

One option is a personal loan but that is still likely to attract interest of around 11 to 14 per cent, or more. It may also be possible to consolidate high interest debt into your home loan if there is sufficient equity in your property.

If consolidation is the only answer, using your home loan to pay off a credit card can be an effective solution as the interest rate on a mortgage is significantly lower than a credit card – in some instances it is as little as one third.

Remember, as soon as you’ve tackled your credit card debt reduce the maximum available balance – stick to using just one card and keep spending on track by staying with your budget.