Financial independence, while a good goal, is sometimes not enough. If you want to recover from your debt situation, you may want to opt for financial stability instead. You can easily confuse the two but let us define them for you.
Financial independence refers to your ability to supply your current needs without putting yourself in debt. Financial stability gives you the same but it also goes further – it allows you to pay for unexpected expenses that are beyond your usual budget.
Financial stability can be achieved by one thing: savings. This is the best way for you to prepare for any incident is by growing your emergency or reserve fund. That way, you do not have to think about where you will get the extra amount that you have to raise immediately. You can simply dip into your savings without compromising your usual expenses or borrowing money just to finance that emergency need.
This is easy if you have enough money to save. But how do you aim for financial stability when you are in the midst of a debt crisis? Surely you have to prioritize your debt payments right? While your debts may be a priority, you have to realize that your savings should be prioritized as well. It will help you keep up with debt payments even when an emergency situation arises. But how do can you afford both?
This is when debt consolidation becomes the perfect debt solution. Let us identify the reasons one by one.
First of all, debt consolidation allows you to make lower monthly payments. Although the debt balance is not reduced, the payment term is extended over a longer period and that lowers the contribution every month. This will free up some funds that can be used to grow your savings.
Another reason why debt consolidation can help you achieve financial stability is through the easy payment method that it lays out for you. All debt consolidation types will make it easier to pay off debts because of the single payment scheme. This relieves you from exerting too much effort in monitoring debts and will also minimize late payments. Because of this, you get to focus more on growing your income – which in effect, will help you increase the amount that you can put into your savings.
Lastly, you can benefit from the personal finance education that debt consolidation will teach you – at least if you opted for debt management. To be financially stable, you need to practice various financial management skills and be consistent with it. These include creating a budget and making sure that you will stick to it. Smart spending is also something that you need to implement so that you will not waste your money.
What you have to remember is that financial stability cannot happen overnight. You have to realize that it takes time and you have to be patient in sticking to your goals. And once you have achieved both debt freedom and financial stability, make sure that you will never leave that financial state ever again.