Managing your debt can become a stressful experience. As such, you might have the temptation to consolidate your debt into a personal loan or work with a debt management company because then you can see a reduction in your monthly payments. Before deciding to consolidate your debt, it's important to be mindful of common mistakes we make when doing this.
Neglecting to Examine the Root Cause of the Problem
If you are at your wit's end when managing your debt, it's important that you take a step back and discover how you came to this point. If you are struggling to make just the minimum payments to your creditors you'll want to examine your expenses from your bank statements to find ways to save money. If this means sacrificing luxuries such as eating out or cutting back on a bill such as your cell phone, it's imperative that you identify costs you can eliminate. With the money you save you can then apply that to your lender's payments.
As part of this, it's important to also understand the behaviors you used to get your debt to this point. As painful as it might be, go back through your credit card statements and really examine what you used the cards for and come up with active steps to solve this problem going forward. For instance, if you used your credit cards for basic expenses such as groceries, utility bills and gas, then it's important to rework your budget to make these become cash expenses again. If you need assistance, you can contact a reputable credit-counseling agency to help you set up a budget.
Consolidating Just for Convenience
While it's simple to consider rolling all your debt into a credit card, especially one with no balance transfer fees and a low introductory interest rate, is it really the best move for you? If you are only paying the minimum amount each month, it's likely you won't be able to pay off the whole balance during that introductory period in which case then you'll have more interest fees accrue. Therefore, it's important to think long term when it comes to debt consolidation. While the temptation for the easiest possible method might be within your grasp if it's going to cost you more money in the future is it really worth it?
Failing to Examine Other Options
Debt consolidation is just one way you can manage your debt. There are other methods, such as Dave Ramsey's Debt Snowball Plan, where you focus on your smallest balance first and pay that off as quick as you can while making minimum payments on all other bills to lenders. As you begin to pay off debts, you'll gain momentum and have the confidence you need to continue to employ this method until you are debt free. Another option to investigate is a debt management plan with a reputable consumer credit counseling agency. With this, the agency will work with your creditors to reduce monthly payments and even eliminate late fees or lower interest rates. Ultimately, by knowing all your options ahead of time, it can help you choose the best one.