Consolidating Debt: Savings Strategies Part I

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Good money saving habits have much to do with knowing when to act – when to push, and when to pull, when to give and when to take, etc.

It is important to be able to respond to the ups and downs of interest rates to the best of your ability. When interest rates go up, you need to be able to push your expenses down. When interest rates go down, you can allow your debt to rise. Essentially, you should try to use money when it is the “cheapest”. One of the best ways to play this game might be to consolidate your debt and use the resulting savings as effectively as possible.

The asset in which most of us keep our money (or more accurately, our debt) is in a house. While people sometimes feel that they cannot afford to buy a home, understand that renting is not saving. While renting, you are incapable of securing more money. Below you will find valuable tips about using home equity and debt consolidation as your savings strategy.

The average American family has an $8,000 credit card debt. Using debt consolidation to pay off credit cards is one of the most tempting, but misused, ways of tapping into home equity. On the other hand, getting a handle on credit is quite essential to maintaining effective savings.

A whopping 70% of people who use equity to pay off debt end up owing at least the same amount again within two years. In other words, it is easy to use your relief as a life vest instead of a swimming course. In the absence of a savings strategy, people waste the great potential of refinancing. If you are dealing only with credit cards and truthfully are unwilling or unable to change your spending habits, then there may be another way to manage your debt.

Look for zero-percent credit cards. Consumers have the potential to save hundreds of dollars by consolidating high-interest credit cards into to one zero-interest card. However, you must commit to saving. Always read the fine print. Most 0 % interest offers carry serious restrictions such as minimum balance transfers and time limits for the interest rate. Typically, most offers last six months. For many people, this can mean significant savings, but others try to move from one 0% card to another 0 % card at the end of the introductory period. While hopping from card to card may work, it also may put negative points on your credit.

Recent increases in the cost of buying a home have led some to advise that it is better to rent than to buy a home. The problem with this kind of “front page news” advice, however, is that the front page always changes. Do not let individual expert opinions change your long-term savings plan. You can be sure that when interest rates drop, investors will rush right back into the market.

Some aspects of home ownership never change. Managing debt through consolidation always is a smart strategy to get (and to keep) a home. With credit so easily available to so many people, consolidating debt just makes sense. No matter what any given expert says at any given moment, the simple, unchanging truth is that consolidating debt should always be a strategic part of pushing and pulling money to and from the piggy bank.

For more information on savings strategies, see part II of this article.