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5 Smart Money Habits for Successful Debt Consolidation

9th March 2023

If you’ve found yourself feeling trapped under an overwhelming amount of high-interest debt, debt consolidation loans could help you manage the repayment of your debt. For this to be successful, you need to change your money habits.

When you think of the word ‘habits,’ you probably think about small, automatic and regular actions. Though small, breaking bad habits and developing new ones is much easier said than done. With the help of some smart money habits, you can find success with debt consolidation and maybe get out of debt for good!

Get A New Perspective

Though money is ultimately just a tool, many people attach emotions and even a personal sense of worth and identity to it. As a result, debt often comes a deep sense of shame and low self-worth.

Maybe you’ve found yourself in this situation due to living beyond your means. Perhaps an unexpected medical emergency derailed your spending. If you feel ashamed about your past spending choices or that you didn’t find a way to put aside enough money to protect yourself in the event of an emergency, you're not alone - it’s much more common than you think.

Making changes, particularly restrictive ones, to get out of debt can feel like a punishment for these transgressions, but it’s not. Don't beat yourself up about past events you cannot change. Instead, look at this as an opportunity. You deserve to live a life free from the burden of debt, and you deserve to stick to your new money habits to achieve this.

Track Your Spending

We can’t stress this enough: the key to making debt consolidation work is to budget, budget, budget! Instead of rolling your eyes and scrolling past this section, think back to what you read a few paragraphs above about habits being repeated actions over a long period of time. This is exactly what budgeting is all about, and this habit is the key to knowing your finances inside and out.

Without tracking your spending, you won’t know exactly where your money is going or where there’s an opportunity to make changes. In this sense, budgeting is the money habit that informs all your other money habits.

If you’re a novice budgeter, follow these five steps to get started:

  1. Spend one week to one month tracking your spending
  2. Calculate how much you spend within each area of your life
  3. Calculate how much you’re overspending
  4. Identify areas where you can reduce spending
  5. Determine a weekly or monthly allowance for each area

Once you’ve established a budget, record your spending at the end of every day. As you become more confident, you can move this tracking to the end of every week and eventually, the end of every month.

Woman with phone and credit card

Break Bad Money Habits

Now that you’ve developed a budget, you should have a clear idea about what needs to change to find success with your debt consolidation loan. Although, in theory, it’s as simple as spending less, in practice, changing your bad money habits can be difficult.

When it comes to building new habits and breaking old ones, there’s no expert quite like James Clear, the author of the bestselling book, Atomic Habits. One of the many things Clear stresses is that to break a bad habit, you can’t just try to get rid of it—you have to replace it with a good habit.

Besides identifying where you’re overspending, you need to determine why you’re overspending. Maybe you’re spending on new clothes each month because you’re lacking confidence in your appearance or it helps reduce the feeling of imposter syndrome at the office.

Instead of just cutting out those purchases, find ways to make yourself feel good about yourself through other means. This may include reciting positive self-affirmations every morning. It may also involve dedicating more time to a hobby that makes you feel good about who you are and what you can do rather than merely how you look.

Naturally, this is just one example, but you can apply this to the source of any spending habits you want to break.

Change Your Environment (Not Your Lifestyle)

If you’re spending half of your wages on eating out at fancy restaurants and cocktail bars, then yes - you may need to make some lifestyle changes. But at the end of the day, you are who you are and you like what you like.

Are you a passionate coffee aficionado that can’t stand a cheap drip brew? It’s probably not realistic to declare that you’re going to quit visiting your local coffee shop and go cold turkey. What you can do is alter your environment.

For example, you could buy some high-quality beans and your favourite milk from your local shop. Keep these out on the counter where they’re readily accessible. This will encourage you to make coffee at home when you have the time rather than getting a coffee to go seven days a week.

Likewise, if you’re a bit of a window shopper, leave your credit card at home. This will prevent you from making big impulse buys. If you truly want the item, you’ll make the effort to go home and get your card.

Environmental design is an important pillar in habit change that can make a huge impact on whether or not you’re successful.

Recover from overspending

Make Small Changes Over Time

Tired of reading that you have to stop eating out, cancelling subscriptions and turning your thermostat down to get out of debt? Developing habits that stick comes down to throwing away the idea of perfection and starting small. Micro habits can be just as impactful as big lifestyle changes - and are far more sustainable.

Instead of cutting out all your bad money habits at once, make a new small change at the beginning of each month. Going back to our previous example of coffee, cut down your visits to your favourite cafe to six days per week instead of seven. After a month, make that five days.

At the end of the day, a debt consolidation loan alone won’t get you out of debt. You need great money habits too!

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