If it feels like your debts just keep accumulating and you’re getting nowhere repaying them, then consolidating all your debts in one place could offer the ideal solution. This makes repayments a lot clearer, as you will only have one to make each month with the same interest rate attached. However, many people who use debt consolidation services often fall into a few of the same traps even though they can be easily avoided with the below tips.
Understand Your Situation
As writer and philosopher George Santayana famously said, ‘those who do not learn from history are doomed to repeat it’. While this advice can be used for many situations, when dealing with debt it feels particularly apt. A strong understanding of how you got into such debt and where mistakes were made should make it easier to avoid repeating in the future.
You must acknowledge how serious the situation is and create a plan to not only consolidate your debt and pay it off but take measures to avoid ending back up in the same situation later. Reviewing your previous spending and making a budget for the future based on your incomings and outgoings should help.
Limit Your Use of Credit
One of the traps that’s easy to fall back into when you have just one debt and are freeing up money you were previously spending on interest, is to start using your credit cards and borrowing again. In many cases it will be this overspending and excessive borrowing that resulted in financial difficulties in the first place.
That’s why it’s important to put a limit on your use of credit, whether it’s only using credit cards with a maximum amount, or borrowing over a shorter period like 24 months or another set amount of time. Closing all your other credit accounts except for one could damage your credit score in the short term, but the long-term benefits should be worth it.
Explore All the Available Options
Don’t just go for the first debt consolidation option you come across. It’s essential that you verify the legitimacy and reputation of the company you’re willing to use from more than one source. Word of mouth is always good but sites such as Trustpilot and other online reviews will be useful.
Sadly, there are a lot of scam companies out there, which is why checking up on any debt consolidation providers is vital. Plus, taking your time to find the best one should help you avoid encountering any problems in the future.
Stick with the Program
Once you have consolidated your debts and created a plan to repay everything, you must stick to it. Going off and missing any payments or not meeting minimum card repayments will lead to issues and greater payments owed next time. This can throw you off the plan and negatively affect your budget.
Missing payments as part of your plan can also damage your credit score, which could make borrowing in the future a lot harder. Whether that’s to consolidate further debts, take out a mortgage or anything else, it’s not ideal.
If you’re thinking about debt consolidation, make sure you research your options and stick with the plan to avoid any of these common mistakes.