When you are struggling with multiple debts, the idea of consolidating can be very pleasant. With this plan, you can combine your installment loans, credit card debt as well as other personal loans into a single payment while keeping the interests lower and manageable payments.
While this is a promising method of paying your debts, you have to tread carefully lest you find yourself in deeper problems. Taking this route before evaluating your situation can prove to be disastrous. Nevertheless, there is no reason to worry because this article will show you how you can make the best out of a debt consolidation plan.
Acknowledge the root cause of the debt problem
More often than not, most individuals will use a debt consolidation plan because the spending habits have gone wild and out of conscious control. It’s more of a mitigation measure for the obvious repercussions. While this is a worthwhile reaction, it fails to solve the underlying cause of the debts.
Since most people seeking consolidation are holding over $10,000 in debt, it is imperative that you understand the root cause. It’s no secret that such debts haven’t accumulated over a few weeks or months. Therefore, making an overnight resolution for a problem that has developed over time would be a mistake.
But if you don’t acknowledge the real reason why you are having debts, you might have to deal with the same scenario sometimes in the future.
Do a thorough research for consolidation options
Today, people who intend to consolidate their outstanding debts have more options than in the past. Depending on your preference, you can settle on an unsecured loan, secured loan, transfer your debts to a line of credit, or utilize a balance transfer card.
Alternatively, you can choose to go with debt management or debt settlement. The former allows you to pay lower interests or extend the previous term through negotiations initiated by a credit counselor with your creditor. On the other hand, debt settlement enables you to pay a certain lump sum which is usually a lower amount than what you owe and the remaining portion is forgiven.
You must scrutinize your financial situation before deciding which option to use. Basically, each option comes with its pros and cons depending on the prevailing circumstances.
Make sure you are consolidating the right debts
Sometimes, you may come across people who want to consolidate all the just right loans in their name including those with relatively low interests. When you do this, you might be paying more interests than you would have incurred if you left the loan out of the consolidation plan.
While it’s perfectly normal to feel the need to combine all your debts into a single payment, you might end up shooting yourself in the leg if you are not careful.
As a rule of thumb, consolidate the expensive loans and leave out those with low interests. For instance, transferring a student loan to a credit card would be very expensive in the long run.
Stick to the repayment plan
The instant you agree to use a debt consolidation plan, you should try your best to carry on to the end. If you fail to pay as agreed, the effect on your credit profile can be massive and this will pose difficulties when trying to borrow in future.
Take sufficient time to rearrange the resources at your disposal to ensure you will make the payments as planned. Before hopping on any plan, study the program from all angles to ensure that you won’t drop off before the term is over.
Don’t turn to credit before you’ve made progress
While a debt consolidation plan can make you experience an intense sense of freedom from a nasty debt leash, the truth is far from this. You have to deeply realize that it acts as an effective method of dealing with outstanding debts in an easy way. As such, you must banish any impression of the plan as a magic wand that makes debt disappear.
Having several credit cards that are ready to be used can be enticing especially when you are used to a spending lifestyle. But if you do this, it’s likely that you’ll reload your debts within a short time. At the same time, you need to understand that you are still carrying huge debts and adding more will complicate the situation.
In any market where money is circulating, there will always be some elements who lurk in the sidelines waiting to reap where they never sowed. With the debt situation in the US today, debt consolidation programs are experiencing a high demand.
Remember that demand is one of the main attractions of scam artists. Therefore, you must steer clear of any agency or individual who tries to push you into peening down a deal. The first step when thinking about combining debt should be digging out more information about the service provider.
Make a solid plan to help you move forward
After you’ve held counseling sessions and settled on a consolidation plan, you need to figure out how you will adjust the former habits. A suitable coping strategy should be in place since you will be making a huge shift in your habits. This will address the frugal fatigue that might kick in after some time.
To achieve sustainable progress, you need to create an actionable budget that facilitates the creation of an emergency fund. When you have a safety net, it will ward off any pressure towards the reliance on credit.
In essence, a debt consolidation program is designed to make you have an easier time dealing with debts. You will not only pay lower interests but you will also pay manageable amounts each month. Nevertheless, you have to make sure you are getting into a program that suits your financial situation.