Debt consolidation can look like a great way to help fix your financial problems, but is it really your best solution? We aren’t so sure about that.
Sure, you can take out a loan for the amount that you owe for the rest of your debt, leaving you with one payment. Yes, it can help to make your life a little easier as well because you won’t have so many loans or debts to keep track of. And yes, one payment might even help you save a little bit of money if you can get approved for a lower interest rate than the rates you currently have.
Unfortunately, these benefits aren’t necessarily guaranteed. What money you do save on your interest rate might be negated by the origination fees and charges. You might want to consider these things and prepare to change how you spend money before you really consider a debt consolidation loan.
Debt consolidation doesn’t make things easier
The very idea of debt consolidation is a good one, but it doesn’t always work out that way. Debt consolidation loans will only grant you a short bit of relief. It’s usually followed by people taking on new debt that’s outside of the ones you already have. The only way debt consolidation can work is if you change your spending habits for the better—and people just have a hard time doing that.
Get ready to learn about how you spend your money
Debt consolidation works the numbers side of managing your money, but it does nothing for the emotional part of it. You’ve heard about retail therapy, right? This is a perfect example that explains why you have to understand why you are in this financial mess to begin with. If you can address the root of your problems with money, then those problems will only keep mounting up until you’re buried under massive debt.
Clean up your finances before you consider debt consolidation
If you feel like debt consolidation is an answer to all of your problems, then it’s important that you do whatever you have to to get rid of any ways that could cause you to create more debt in the future. This means cut up credit cards with the highest interest rates and creating a budget system that you will hold yourself accountable to. Start an emergency stash or savings account with extra cash that you could use when there’s an emergency that your budget can’t cover. Then, figure out how you will repay your newly consolidated debt. Will you stop buying that latte in the morning? Will you skip drinks with the girls after work? These small things can really add up.
Consider your other options
Debt consolidation is just one way you can repay your debt. If you have several debts against you, you can use a free program to sort through the numbers. You could also use other strategies to pay off debt. The main thing is to become accountable for your spending habits and coaching that will help you manage your finances. While you might feel like that mountain of debt will never go away, you don’t let it get the better of you. Just inhale deeply and stick to your plans!