Debt can be frustrating, but most of the time it’s unavoidable. The only savior is how to handle it until it is fully paid.
Debt consolidation – merging your debts into one payment to be made through a consolidation loan – is one of the ways to pay off your debts faster and easier, especially if you qualify, because it is possible to pay less interest.
As simple as debt consolidation may seem, it still takes good organization and discipline to reap the benefits. Debt Fix is one of the sources that can help you in debt management.
Here are six things to avoid when consolidating your debt.
1 Rushing into the decision
Rushing into the decision to consolidate your debt is usually the result of frustration with accumulated loans that you are struggling to repay. The fact that combining your debts into one payment seems simple and straightforward might tempt you to overlook the details.
When you consolidate your debts into one payment and get a consolidation loan, you need to have all the information you need for each step of the process. This includes being very clear about the terms and conditions to avoid the possibility of being penalized in the long run. Keep an eye on your credit report before you think about taking the direction of consolidating your debt.
2 Overlooking the real cause of your debt
It’s one thing to find a way to settle your debts, but it’s another to understand why you ended up in debt.
Consolidating your debt into one payment will take the stress out of having many payments to make in a given time frame, but if you don’t strategize about building better spending habits in the future, you could take on more debt.
Identify some of the bad habits that caused your financial problem. For example, credit card debt is one that you can combine with others into one payment, but you can still use the cards. You may decide to limit credit card use to emergencies only, but if you’re not disciplined in controlling your use, you could end up worse off even after debt consolidation.
3 Ignore debt consolidation advice
Although you can learn how to consolidate your debt on your own, it is essential to seek advice from financial experts such as credit counsellors. They will enlighten you on the different options available and help you choose the right direction for you.
4 Consider only one option
Since you would like to get out of debt quickly, you may be tempted to choose the first option that appeals to you without researching the others available.
Before deciding on a debt consolidation option, consider debt management programs, applying for a secured or unsecured loan from a bank, and debt relief.
Take the time to review the options available, considering the pros and cons of each until you can confidently choose the one you’re comfortable with.
Some options may seem like the best until you get all the details, which makes you regret them. For example, choosing balance transfers — moving the amount you owe on one credit card to another credit card — could save interest rates upfront. But it could be a costly affair, justified by costly upfront fees, strict conditions to be met, and the urgency to pay off consolidated debt within the promotional period to benefit from the low interest rate.
5 Underestimating the importance of your credit score
Your credit score is a key determinant of your access to particular loan products. In other words, you might not qualify for a consolidation loan if your credit rating is low.
Debt consolidation allows you to review your financial goals, including maintaining a good credit rating and getting back on track financially.
6 Random payment of the debt consolidation loan
You may be eligible for a consolidation loan, but if you don’t have a proper plan to pay it off, becoming debt free can be a long journey. As low as the monthly payments are, depending on the debt consolidation option you choose, you need to be disciplined in making the payments.
Paying attention to how you spend your money is key to making consolidation loan payments easier and faster.
A better financial future
It may be impossible to live without debt, but debt consolidation is a promising way to make it more manageable. The job is to choose the option that suits you best, following the advice given in order to avoid costly financial mistakes.