Being in debt can be a significant burden. To get on the journey to becoming debt-free, you may have entered into a debt consolidation program. This enables you to take out one loan to pay off your various other debts, so you owe one lump sum rather than several debts to numerous institutions.
Although you may see light at the end of the tunnel after consolidating your debts, there are many mistakes you still have to steer clear of to ensure you truly become debt-free.
1. Not Understanding How You Got into Debt
Consolidating your debts may help you may help you pay them off faster, but you could end up in exactly the same situation, drowning in payments, if you keep spending the same way you used to. Without fixing the real problem, debt consolidation will only be a band-aid solution. To truly become debt-free, you must change your poor financial habits that made you go into debt in the first place. Reflect on your situation and take steps to ensure you stay clear of debt in the future.
2. Reloading Your Cards
Debt consolidation may free up money on your credit cards, but it doesn’t mean you now have no more debts or payments to make. As mentioned above, you need to curb your spending habits to stay on the right financial path.
If your credit cards no longer have a balance on them, you may want to consider cutting them up to avoiding spending more. Otherwise, you may end up taking on more debts as you reload and max out those empty credit cards again.
3. Taking the First Debt Consolidation Solution You Come Across
There are many different options available to you to consolidate your debts, and there’s no one-size-fits-all solution. You may move all your debts over to one credit card, open a line of credit, or receive a loan from the bank. You might also consider entering a debt management program or a consumer proposal.
Which option is best? It depends on your unique financial situation. To ensure you choose the right option, it’s best to meet with debt relief professionals who can offer guidance and advice to ensure you use the right debt consolidation option for your situation.
4. Choosing Debt Consolidation When It’s the Wrong Option
Just as there are many debt consolidation options to consider, you also have many debt relief options to consider. It may turn out that consolidation isn’t the right option for your situation. Rather, you may be better off working with a credit counsellor, focusing on debt settlement, or filing for bankruptcy.
5. Falling for Scams
Unfortunately, there are unscrupulous predators who prey on vulnerable citizens in debt. You may be desperate for a solution to your financial troubles, but you should be sure to avoid salespeople who try to pressure you into signing up for debt consolidation services without first researching their services or your other options. Do your due diligence before signing any contracts.
6. Not Sticking with the Program
Finding the right debt consolidation solution is only the first step on your journey to debt relief. You then need to continue sticking with the program until your debts are paid off. A big mistake people make is not repaying their debt as expected. This can lead to a bad credit score and more financial struggles. Make sure you understand your finances and budget properly to ensure you can meet your payment obligations.
7. Consolidating the Wrong Debts
It may be tempting to consolidate any and all debts, but this might not be in your best interest. Debt consolidation is best used for high-interest debts. Some low-interest debts, such as student loans, can actually be transferred to zero percent credit cards instead, saving you more money on interest.
Avoid these seven mistakes to ensure your debt consolidation program goes off without a hitch.