The Young Witness

6 things to avoid when consolidating your debt

Debt consolidation is one of the options you can use to make it easier to pay off debts and get your finances under control.

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Debt can be frustrating, yet it's unavoidable most of the time. The only saviour is to know how to manage it until it's fully paid.

Debt consolidation - merging your debts into one payment to be made through a consolidation loan - is one of the ways you can pay off debts faster and easier, especially if you meet the requirements, because it's possible to pay less interest.

As simple as debt consolidation sounds, it still requires good organisation and discipline to be able 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 a result of frustration with accumulated loans that you're struggling to pay. The fact that combining your debts into one payment sounds easy and straightforward could run you into the temptation of not paying attention to details.

When you combine your debts into one payment and obtain a consolidation loan, you should have all the information right for each step of the process. This includes being very clear about the terms and conditions so you avoid the possibility of being penalised in the long run. Keep tabs on your credit report before you think of taking the direction to consolidate your debt.

2 Overlooking the real cause of your debt

It's one thing to find a way of settling your debts, but it's another to understand why you ended up getting into debt in the first place.

Consolidating your debts into one payment will ease the stress of the many payments to make in a given time, but if you don't strategise on better spending habits in the future you could sink further into debt.

Identify some of the bad habits that have caused your financial problem. For instance, credit card debts are among those you can combine with others into one payment, but you can still use the cards. You could decide to limit using credit cards to emergencies only, but if you're not disciplined in controlling your use of them you could end up in a worse situation, even after debt consolidation.

Debt consolidation lets you focus on paying down one loan amount.

3 Ignoring debt consolidation advice

As much as you can learn how to consolidate debt on your own, it's critical to seek advice from finance experts such as credit counsellors. They will shed light on the various options available and help you decide the right direction for you.

4 Considering only one option

Since you would like to get out of debt fast, you may be tempted to choose the first option you find appealing without learning about the others available.

Before deciding on a debt consolidation option, consider debt management programs, applying for a secured or unsecured loan with a bank, and debt relief.

Make time to go through the options available, considering the advantages and disadvantages of each until you can confidently choose one you'll be comfortable with.

Some options may appear to be the best until you get all the details, making you regret them. For example, the choice of balance transfers - moving the amount you owe on one credit card to another credit card - might allow interest rate savings initially. But if could be an expensive affair, warranted by costly advance charges, strict conditions to comply with, and the urgency to pay off the 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 critical determinant for your access to particular loan products. In other words, you may not qualify for a consolidation loan if you have a low credit score.

Debt consolidation allows you to review your financial objectives, including maintaining a good credit score and getting back on a good financial track.

6 Haphazard payment of debt consolidation loan

You may be approved to obtain a consolidation loan but if you don't have a proper plan to repay it, becoming debt-free may be quite a long journey. However minimal the payments may be monthly, depending on the debt consolidation option you choose, you must be disciplined to make the payments.

Being careful about how you spend your money is critical in helping make payments for the consolidation loan more straightforward and faster.

A better financial future

It may be impossible to live without debt, but debt consolidation is a promising way of making it more manageable. The work is in choosing the option that best fits you, following the advice as discussed so you avoid costly financial mistakes.

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