Should I Consolidate My Debt Now or Never?
For many people, consolidating debt provides a way of managing debt better and paying it off sooner. Having one regular repayment to make it easier to budget, you will often find that the rate on your newer loan will be lower than the interest rate on credit cards or store cards.
And that is what you should be shooting for when considering this particular solution. The lower rate is what makes it work and why it’s been so appealing to many consumers over the last 50 years.
However, consolidation does not work for everyone and for some people it ultimately leaves them worse off. So you need to move forward carefully, making sure to examine all your options before making your final move. There are certain things you need to look out for that will prevent you from making a fatal financial mistake.
Here are some guidelines that will help you decide if you should go with this plan now or hold off until a later time.
Do I Really Need to Consolidate My Debt?
This is the first question you need to answer. Although it is never wise to ignore a debt problem, it is equally important that you don’t panic about it.
If you think that you can repay your debt within six months to a year, then you probably don’t need to consolidate credit card debt, and you don’t need to be thinking about a debt management plan or bankruptcy.
The only reason that you might contemplate using this method when your debt is still manageable is if you want to simplify your finances and reduce the overall interest that you are paying.
But even then, it will require serious thought on your part because essentially you will be prolonging the time it takes to pay off the money you owe to your creditors. And that shouldn’t be a decision you rush into. There might not be any need to go in this direction at all.
Are you serious about repaying your debt?
You should really enter into this type of agreement with the mind-set that you want to pay off, or significantly reduce, your debt.
Where a lot of people come up short is that, once their debt has been consolidated into one single loan and their credit cards have been cleared, they start building up new debt on their credit cards again.
To maximize the benefit of a debt consolidation loan or any other form of debt reduction, you should view it as a means of repaying your debt, not simply rescheduling it. And it should be a part of an overall plan to improve your financial situation, which will include changing your spending habits so that the debt doesn’t accumulate again.
Is your debt manageable in the long term?
There are situations where you consolidate debt but that alone will not be enough to remedy a debt problem. If you don’t think that you could reasonably expect to repay your debts within five years, or your total debt amounts to more than half of your gross annual income, you might be better advised to seek help from a credit counselor.
If your debt has reached insurmountable levels, the sooner you seek help the better.
There are a number of options open to you, depending on your circumstances.
So when is the best time to consolidate debt?
It is important to remember that a loan for the purpose of consolidating debt doesn’t solve your financial problem; it makes it easier to manage. If you do decide to travel down the consolidation road, you should stop using the cards in which you built up the debt in the first place, or you will wind up with twice the debt that you started with.
When your debt is at a level that you could reasonably expect to pay it off within five years, then a consolidation loan may be a suitable means of getting your debt cleared.
It will give you a more manageable, single monthly repayment to deal with and it will quite likely reduce the amount that you are paying monthly to service your debt as well. But again, you should attempt to pay as much of it off yourself prior to entering this arrangement.
The interest rate is also likely to be lower than if you were to leave the debt outstanding on your credit cards. That will mean that each payment you make will be reducing the debt, rather than just paying the interest alone. That will go a long way towards reducing what you owe much quicker.
Dealing with multiple debts can also be very stressful. You will be receiving multiple demands for money and, under those circumstances; it is easy to forget to make a payment and that will lead to late payment fees and even more stress. It creates a snowball effect of negative feelings and thoughts.
Having one single payment to make is a lot easier to manage and it is far less stressful.
In summary, deciding to consolidate debt can provide you with lower interest rates, less stress, easier repayments, a means of repaying your debts within a reasonable timeframe. And if that’s the case, then the best time for you to get started with this solution might be now.