Debt consolidation can help people regain control of personal finances. There are, however, some important things to know when thinking about it. Here are some debt consolidation mistakes to avoid when going through the process.
Not Having a Repayment Plan
Consolidation is a way consumers can put themselves in a much better position to repay their debt. But the key here is that all consolidation does is put the individual in a position for success. It doesn’t do all the work for them.
Consolidating your debt without a repayment plan is like trying to build a house without a blueprint. You can have a general idea of how it’s supposed to look, but without a clear guide, you’re probably not going to see ideal results. Creating a budget should be your first step. When you have one, you can know exactly where your money goes so you can be certain you’ll have enough to repay your debt.
Not Making Payments
It’s always important to make payments on loans you intend to pay back, even if it’s the minimum amount. Failure to do this can result in serious damage to your credit. While there are some scenarios where not paying might be a necessity, this isn’t the case when it comes to debt consolidation.
If you’re consolidating multiple lines of credit, you really want to be able to make every payment on the new loan. Payment history is the most important factor in your credit score, so missing payments will hurt you there.
You might also trigger penalties related to fees or interest rates if you miss a payment on your consolidated loan. Finally, getting out of debt was the whole purpose of consolidation. This will not happen if you’re missing payments.
Not Seeking Assistance
It’s never a mistake to get help when it comes to your finances. Things can be tricky when you’re not an expert. It’s worth asking someone to help you get it right when you consolidate your debt. Fortunately, there are many places consumers can turn to seek assistance with consolidation.
A credit counseling service is generally one of the first places you should seek advice. These non-profit organizations can give you tips on budgeting and set you up with a debt management plan. Consumers should also look at Bills.com debt consolidation services for a trustworthy resource. Getting help with your debt consolidation will make the process easier. Plus, having an expert on your side will give you peace of mind, knowing they can guide you away from making financial mistakes.
Not Reading the Fine Print
The devil is in the details when it comes to debt consolidation. You need to know what you’re signing before finalizing anything. As an example, you might lose your introductory interest rate if you miss a payment with credit card balance transfers. This can vastly change the affordability of the loan, since the low intro rate is what makes a balance transfer so appealing.
Furthermore, there can be all kinds of fees hidden in the fine print of financial documents. Take the time to read through it all so you don’t get caught off-guard by an unexpected cost. You also might catch some other fishy business, which will let you get out of a potentially scam-like arrangement.
Not Changing Your Habits
Consolidating debt only makes sense if you’re committed to sticking to your plan. Some people will need to change spending habits in order to make this work. Consolidation is a chance to right your finances. It’s only going to work if you’re firing on all cylinders. There’s always a risk people will get lax after they consolidate debt, as they feel less pressure. But going this route won’t help you beat your debt.
There are lots of things to consider when looking at debt consolidation. Knowing what mistakes to avoid can ensure you’ll have a greater chance for success.