Here's how to stay debt-free after credit card consolidation

Make the most out of your debt repayment plan by taking these simple financial steps after credit card consolidation. (iStock)

Consolidating variable-rate credit cards into a fixed-rate personal loan may help you pay off debt faster, reduce your monthly debt payments and save you money on interest charges over time. But while credit card consolidation is a popular way to get out of debt, it can be tempting to run up your credit limit again after you've paid the balances down to zero.

"If you consolidate your credit cards and continue to spend the same amount as before, you will end up in the vicious cycle of credit card debt," said Ryan J. Marshall, a certified financial planner (CFP) based in Wyckoff, N.J. 

Keep reading for tips on how to stay debt-free after credit card consolidation. And if you're considering paying off your credit card debt with a personal loan, it's important to shop around for the lowest interest rate possible for your financial situation. You can visit Credible to compare personal loan rates for free without impacting your credit score.


Build a robust emergency fund

An emergency savings fund can help you avoid taking out high-interest credit card debt when you're faced with job loss or an unexpected expense, such as car maintenance or home repairs. Zachary Bachner, a CFP in Sterling Heights, Mich., said that your emergency savings should cover about three to six months' worth of living expenses.

"Having these savings set aside will allow you to pay for any unexpected expenses and will remove the need to charge the expense to a credit card or potentially a personal loan," Bachner said.

Boosting your savings can 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 into your emergency fund can help you raise your balance without even thinking about it.

"Have your employer send money directly into your savings account, so you do not see there is money to spend," Texas-based CFP Jordan Benold said.

Another strategy is to put your emergency fund into a high-yield savings account that grows over time with interest. You can visit Credible to compare savings account rates across multiple banks at once.


Track your spending habits with a budget

According to Marshall, debt consolidation is the easy part of achieving a debt-free lifestyle — "The hardest part is the behavior of budgeting and sticking to it."

Creating a sustainable budget can give you valuable insight into your money management, so you can identify areas where you might be overspending. You might find that you're spending more than you earn, which can be the root cause of credit card debt.

"By limiting your expenses, you can remove the need for debt on a monthly basis," Bachner said. "It is important to track every dollar of income and match it up with either an expense or a savings goal."

To get a better idea of how you manage your finances, input a few months' worth 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 securely connecting through your bank. 


Look for ways to increase your income

Inflation has been rising at a record annual pace in 2022 so far, which means the money you earn is losing purchasing power over time, according to Greg Giardino, a CFP in Tarrytown, N.Y. Because cutting your spending may not be sufficient to help you offset the impact of rising consumer prices, it may be necessary to boost your monthly income to avoid taking on more credit card debt.

However, it's not practical for all breadwinners to take on a second or third job. Less time spent at home may translate to higher child care costs or other added expenses. Before you start looking for side gigs in your local classifieds section, start by asking for a raise at your current position. When negotiating for a higher salary, do your research to see how your earnings compare with others in your industry to use as a baseline.

In some cases, you might consider applying for a higher-paying job. A recent survey from Pew Research Center found that many U.S. workers who quit a job in 2021 were able to find new employment with higher pay. By switching careers, you may be able to earn enough money to finance a debt-free life.

If you're struggling with higher credit card balances as a result of inflation, you might consider debt consolidation with a personal loan at a lower interest rate. You can learn more about credit card consolidation by getting in touch with a knowledgeable expert at Credible. 


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