Debt Consolidation
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LendingTree is compensated by companies on this site and this compensation may impact how and where offers appear on this site (such as the order). LendingTree does not include all lenders, savings products, or loan options available in the marketplace.

What To Do After Debt Consolidation: 7 Steps To Consider

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Content was accurate at the time of publication.

Consolidating your debts into a single loan can save you both time and money. But what should you do next?

If you’re unsure about what to do after debt consolidation, there are several steps you can take to set yourself up for future financial success. Read on to discover seven of the most impactful things you can do after consolidating your debt.

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Steps to take after debt consolidation

1. Review your loan terms and fees

To be sure you fully understand your debt obligations, take some time to review the terms and conditions of your new debt consolidation loan. Put simply, every loan comes with fine print that spells out its repayment terms and any fees you might incur if you’re unable to keep up with your payments.

Reading over this information will help you know what’s expected of you so you’ll encounter fewer surprises. After you’ve read over your loan terms, you should be able to answer the following questions:

  • When are your payments due?
  • What is the minimum monthly loan payment amount?
  • Does the lender charge a prepayment penalty, or a fee for paying the loan off early?
  • What is the grace period before a late fee applies?
  • What fees are charged if you miss a payment or make one late?
  • When are you considered to be in default?

If you’re having trouble answering any of these questions, contact your loan servicer. They should be able to explain the terms of the loan to you in detail. When in doubt, it’s better to make sure that you have a clear understanding of your financial obligations rather than leave anything to chance.

2. Create a new budget

Examine your household budget and decide how much you can afford to put toward debt each month. While you’ll need to cover at least the minimum payment to keep your account current, paying a bit more each month can help you pay down your debt more quickly and save on interest charges.

Let’s say you’ve taken out a $25,000 personal loan at 7% APR to consolidate your debts. On a 5-year loan term, your minimum monthly payment would be $495.03 and you’ll pay a total of $4,701.80 in interest. However, if you were able to put an extra $200 toward your payment each month, you could repay the debt a year and a half sooner and save more than $1,500 in interest.

3. Set up automatic payments on your loan

When it’s time to start repaying your debt consolidation loan, consider setting up automatic payments. This process allows your lender to automatically withdraw the payment amount from your bank account, meaning you won’t have to worry about remembering to submit a payment each month. Plus, some lenders offer an interest rate discount in exchange for signing up for autopay.

Making your payments on time is a crucial part of boosting your credit score. Plus, if your loan is secured by collateral, like a home equity loan or secured personal loan, paying on time is the best way to ensure that you get to keep your asset.

If you decide to enroll in automatic payments, be sure to keep a close eye on your bank account balance. You could face overdraft fees if you don’t have enough money to cover the payment.

4. Monitor your credit card usage carefully

Debt consolidation can be a powerful tool for taking control of your finances. But if you don’t change your spending habits, you’re likely to fall right back into debt.

Start by reviewing your credit card statements and bank accounts to be sure you aren’t spending beyond your means and accruing more debt. You may find that there are some easy ways to save money, such as canceling unused subscriptions or buying the generic version of your favorite products. At the very least, looking over your statements will give you a clearer picture of where your money is being spent.

Once you have an idea of where your money is going, the next step is to curb your spending and set your sights on becoming debt-free. The best way to ensure that you don’t accrue additional debt is to pay off your card in full by the due date each month.

5. Consider credit counseling

After debt consolidation, it’s wise to seek financial education resources to ensure that you have the tools necessary to manage your money well. Enrolling in credit counseling through a reputable, nonprofit organization is one way to learn new financial skills. Credit counselors are certified and trained to advise clients on topics such as:

  • Using credit wisely
  • Budgeting
  • Debt management

Most credit counseling agencies offer a free introductory consultation to help you start learning how to better manage your finances. However, additional services may come with a small fee.

Undergoing credit counseling won’t directly impact your credit score and you don’t need to be experiencing financial hardship to enroll. These services are available to anyone who wants to improve their financial health.

 Need help choosing a credit counseling agency? The U.S. Department of Justice maintains a list of accredited credit counseling agencies on its website.

6. Bring in extra income to pay off your debts faster

If your goal is to pay off your debts as fast as possible, one way to do that is to earn extra money. Putting extra money toward your debt will allow you to pay off your loan more quickly and save money on interest.

Here are a few ways you may be able to bring in extra cash each month:

  • Ask for a raise or more hours at work
  • Look for seasonal employment opportunities
  • Consider starting a side hustle, like driving for Lyft or Uber
  • Have a garage sale to sell unused items

7. Work on building an emergency fund

If you don’t have one already, you should strongly consider building an emergency fund. Having a healthy savings set aside for a rainy day can prevent you from taking on new debt when you experience financial hardship. If your car needs unexpected repairs, for example, dipping into your emergency savings can keep you from putting the bill on a credit card.

Ideally, you should aim to have at least three to six months’ worth of living expenses in your emergency fund. That may feel daunting, but remember that saving even a small amount from each paycheck could make a big difference the next time you encounter an unexpected expense.

What to expect after debt consolidation

Credit score changes

Taking out a debt consolidation loan will likely impact your credit score. You’ll have to agree to a hard credit pull when applying for the loan, which will temporarily lower your score. If you close any old accounts when you paid off their balances, the average age of your credit history will decrease, dropping your score.

However, as you pay down your debts, your debt-to-income ratio (DTI) is likely to improve. This is a measure of how much debt you owe in relation to your gross monthly income, and having a low DTI will improve your chances of approval the next time you need to borrow money.

Debt consolidation is not a cure-all solution

While consolidating your debts can help to streamline payments and, in some cases, make them cheaper, it’s not going to solve your financial problems entirely.

If you don’t take steps to address overspending and change your financial habits, debt consolidation won’t make much of a difference. Plus, if you can’t afford the monthly payments on your debt consolidation loan, you may soon find yourself in more debt than when you began.

Frequently asked questions

During debt consolidation, the funds from the debt consolidation loan should be used to pay off your existing balances. This will allow you to streamline multiple debts into a single monthly payment.

Yes, you can still use your credit card after debt consolidation, but it’s important to watch how much you’re spending. Ideally, you should be able to pay off your balance in full each month to avoid taking on more debt.

If you take out a debt consolidation loan, it will stay on your credit report for as long as the loan is open. However, on-time payments can actually help to build your credit score.

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