Dealing with debt can be daunting. How do you know if debt consolidation is the right solution for you? The only way to assess whether debt consolidation is the best solution is to understand what it is and how it can benefit your personal situation.

So, what is Debt Consolidation?

When you have a loan from all quarters: high-interest loans and credit cards, you can combine them to a lower-interest payment. In simple terms, this means that when you owe money that is two loans with different interest rates. 

You can consolidate the debts by combining them into one debt. Everything will fall into its rightful place, and you will be paying a single payment as per your agreement, whether monthly or so.

How Debt Consolidation Works

When at crossroads on the next course of action to take with the various debts at your doorstep, consolidation is the better way to go. It will lower the interest rate and reduce the monthly payment to an affordable rate monthly. There are also many other benefits to consolidating your debt including flexible terms, easier repayments and potential savings.

  1. First, calculate the total amount you make payments for monthly in every credit card or loans and get the average interest on each. After this, find a baseline number for purposes of comparison.
  2. After getting the baseline, check on your monthly budget, bearing in mind the necessities like food, housing, and utilities and find out what you are left with after spending.
  3. The question to ask yourself is, how much is left?

Knowing the amount of money left after spending will guide you in the right direction. If you organize your budget better, chances are you will have enough left to handle the debt and stay motivated to pay on time. 

When you aren’t motivated, and behind your budget because of falling behind your bills, it’s time to consolidate. Organise yourself by paying the debt into weekly or monthly instalments and track your progress as you eliminate the deficit. This way; you’ll stay motivated and reduce the obligations in the long run.

Top Things to Know Before You Consolidate Your Debt:

Before you commit to consolidating your debts, have these particulars at hand.

  • Consolidation does not guarantee a lower interest rate

When you want to consolidate your loan, the interest rate will be set at the sole discretion of the lender or creditor. The rate will be calculated based on your prior payment behaviour and credit score.

There is no guarantee you will get a low rate even if you qualify for a loan with little interest. Remember, the problem here is your spending habits and not the interest rate.

  • Consolidating your debt still means you have a debt to pay

A debt consolidation loan does not free up money to spend on a holiday or a new car. These loans are created to help you easily manage your debt and lower your interest.

  • You are still in debt

Debt consolidation is not eliminating debt. Simple, you are just restructuring the debt. All you need to do is to reform the debt.

  • Your financial habits don’t change

When you consolidate the debt, it grows. There is no particular plan to manage your cash. In other words, good money habits haven’t been established to keep you out of debt and build you financially as a person. 

You can decide to develop good financial habits or slip back right into debts!

How to get started with debt consolidation

If you have critically analyzed your financial habit and think debt consolidation is right for you, here is how to get started.

  • Have a credit counselling session

You can employ the services of a debt manager to help you with your finances. He can assist you in holistically and identify the best revenue to achieve your debt-free goals.

  • Deliberate on your options

Know the best option that will work for you. The known options are lower-interest balance transfer credit card or debt consolidation loan. Compare the terms and interest rates that will suit your demand.

  • Commit to your debt plan

To get on the right track, first consolidate your debts. Though it won’t disappear overnight, it’s a process in the right direction. Schedule your payments in time monthly and review your budget to get out of debt faster.

Debt consolidation is only the right solution if you’re willing to take the bold step forward. If your debt is spiralling out of control, it may be time to bring it all back together. Enquire online to speak to a specialise consolidation expert.