If you are in over your head with credit card and other unsecured debt, debt consolidation Pennsylvania may be a viable way to regain your financial footing. Consolidating various debts into a single monthly payment may allow you to pay off what you owe faster and more affordably. Without taking steps to address the issues that brought you to this point in the first place, however, you’re quite likely to end up there again before long. This is why financial education is such a crucial part of any effective debt consolidation plan. Read on to learn more about the importance of financial literacy when it comes to managing debt.
The Staggering Costs of Financial Illiteracy
Financial problems don’t just happen without a reason. Sure, unexpected life events can trigger them, but the reality is that most people get into trouble because they don’t have a firm grasp on basic personal finance. According to a study by the National Financial Educators Council, or NFEC, 28.8 percent of Americans age 65 and older stated that a lack of financial knowledge cost them upwards of $30,000 over their lifetimes. Across all ages, a lack of financial knowledge was shown to cost the average American $9,700.
Debt Consolidation: A Step in the Right Direction
Debt consolidation plans like those offered by our debt consolidation Pennsylvania company can be viable and effective alternatives to bankruptcy and other options. Without being paired with financial education, however, such plans are unlikely to help very much over the long haul. This is because financial problems often occur because of a lack of basic financial know-how.
By becoming financially literate, you can make the most of your debt consolidation plan and increase the odds of enjoying financial freedom not just over the short-term but over the long-term as well.
What does financial literacy entail, though? It means having a firm grasp of key money management principles, including the following:
- establishing and following a monthly budget
- understanding the time value of money—in other words, how small changes can add up over time
- understanding the implications of accumulating debt
- knowing how credit works
- learning the basics about compound interest, tax planning and related topics
The Benefits of Improving Financial Literacy
Without including some sort of financial educational component, your debt consolidation Pennsylvania plan is less likely to help you avoid these problems in the future. Along with debt consolidation, then, it’s in your best interests to educate yourself about important personal financial topics. Some of the top benefits of improving your financial literacy include:
Through financial education, you can learn about how to properly manage your money. This includes learning how to establish and maintain a budget that details your income and expenses. Instead of leaving things to chance, you will truly be in the driver’s seat.
Understand Your Finances
By understanding your cash flow coming in and where your money is going, you will be better able to make effective financial decisions. For example, you will have an easier time setting aside money for savings that you can use for unexpected events in the future.
Stop the Debt Cycle
With a firm grasp of budgeting your money effectively, it will be easier to avoid accumulating debt in the future. Instead of charging things onto credit cards or using cash advances to pay bills, for example, you will learn how to keep spending in check and how to prioritize bills. By paying attention to your personal finances, you will see problems developing while they are still small and easy to manage.
Make Better Choices
Financial literacy gives you the ability to make more informed and strategic decisions regarding your finances. For example, you will understand why it’s not wise to open a new line of credit when seeking to buy a new home or why insuring your investments is so important. You will become better at assessing whether a loan or credit card is truly in your best interests or likely to lead to problems. Things will no longer feel like they are being left to chance.
Plan for the Future
A lack of financial literacy doesn’t just hurt you now, it impacts your entire future. Like most people, you’d probably like to be able to retire someday. Financial education can help you to establish and achieve long-term goals like this. More immediately, it can help you to acquire the things that you want more easily. Whether it’s buying a house, paying for a child’s education or planning for a lavish vacation, sound financial literacy will help you to get there without hitting so many road bumps along the way.
Financial Education and Debt Consolidation: A Winning Combination
Wanting to reduce or eliminate your debt makes sense. Without taking steps to correct the mistakes that brought you there in the first place, though, you’re likely to go through the same cycle again and again. When seeking debt consolidation Pennsylvania, make sure to pair it with financial education. The best plans include financial educational resources and even credit counseling that can help you to lay the groundwork for long-term financial freedom.