You may shudder at the phrase “debt consolidation,” but it may not be as bad as it seems. The biggest reason to consolidate debt is to obviously get rid of it or to minimize it. Without properly dealing with your debt as a whole, it can seriously hurt you financially. Luckily, we will give you the full walkthrough on when debt consolidation is a smart choice and when you should look for other methods.
I Can Get Better Interest Rates
If consolidating your debt can result in a better interest rate, it is absolutely worthwhile. If you have several credit cards with balances and high interest rates, you may be able to find a loan or consolidation card with a lower interest rate. This means that you will be paying less over the amount of time it would take to pay back all your debt.
Additionally, a loan typically has an end point. So, after the agreed upon length of time, your debt will be all paid off, just by paying the minimum amount. When making the minimum payment on credit cards, it can take years or even decades to pay back all of your debt. While you are paying it back, more and more interest is being added.
It is also a good choice to consolidate your debt if you can go from a variable interest rate to a fixed one. Variable interest rates change with the market, which means your rates are constantly in flux. Fixed interest rates do not change throughout the length of the agreement, no matter what.
I Will Be Able to Pay My Bills On Time
On time payments are crucial when it comes to building your credit score and future financial options. If disorganization is a problem for you, you may have missed some payments in the past. Debt consolidation may actually be able to help with this problem since you only have to remember one bill payment date instead of several different dates.
There are other ways to stay on track and current with payments. Set up automatic payments for all of your credit card payments and debts. You can also set up email or phone reminders to notify you when a bill due date is upcoming. There are also a variety of smartphone apps that can help you to manage your finances.
A Word of Warning
After consolidating your debt, make a payment plan for yourself. Refrain from using those old credit cards after you have consolidated them so you do not create more debt. It is a good idea to keep these accounts open, as it will reflect well on your credit. If you feel you do not have the discipline to keep the accounts open and not use them, close your accounts. Anything is better than racking up more debt.
What Are my Options for Debt Consolidation?
If you believe debt consolidation is a smart decision for you, there are a lot of options for debt consolidation and many of them do not even involve debt consolidation companies. In fact, you can do most everything that they can do, so why not save the money and do it yourself. Here are four of the many debt consolidation options that are available to you:
The Bottom Line
You should only consolidate your debt as a piece of a larger debt management strategy. This is a smart decision if you can get a loan or card with better terms or doing so will help you to make payments on time. Just be careful that you don’t add new debts on the credit cards you have consolidated.
If your debt is small and can be paid off within a year, debt consolidation may be more trouble than it’s worth. You won’t end up saving that much money. As long as you make your on time payments every month, you will be all set.