Is debt consolidation an option

Is debt consolidation an option for me?

Wrangling your debt can feel overwhelming, confusing and simply frustrating. Many people make uninformed decisions about credit cards and loans that leads them to years of financial burdens. If this sounds like you, rest assured that you are not alone.

Making financially sound decisions is not always easy. Sometimes we experience emergencies, stress and other things that make our decision making less than stellar. If you are at a point where you have a ton of debt, you might want to consider debt consolidation.

You might also be wondering if debt consolidation is an option for me? Let’s explore it a little further.

What is debt consolidation?
Simply put, debt consolidation is when you take all of your debts and combine them into one, simple monthly payment. You can usually lower your overall interest rate and save money in the long run.

Many people get sucked into credit card interest rates at over 20%. It is easy to see why falling behind or feeling totally stressed over your debts easily sets in. With debt consolidation, you can choose an option that fits your budget better.

What are my debt consolidation options?
There are a few different options you have when it comes to consolidating your debts.

Debt Consolidation Company

Using a debt consolidation company is one way to completely manage your debts. By combining all your debts, you can get out of high interest rates and variable interest rates. Debt consolidation companies might charge you an origination fee (somewhere between 1-6%), but in the long run it could really help you pay down your debts.

Always read the fine print!

And be wary!

There are two types of companies that might appear to be debt consolidation companies, but in fact, they are not. You MUST do research before choosing a debt consolidation company, because you can be easily fooled.

Debt Management Companies: these companies will work with your lender to negotiate interest rates and payments. They will charge you fees and this could impact your credit score.

Debt Settlement Companies: these companies focus on the principal balance of your loan. And you guessed it, they charge you fees too.

You want to find a reputable company that will answer all of your questions clearly. If something seems fishy, it’s probably because it is. Now, it is easy to notice red flags when you are looking for them.

These are just a few examples of scenarios you should run from:

  • The company asks for money up front before the loan is approved
  • You can’t find the company’s street address or office location
  • They use any type of scare tactic to try to get you to sign
  • You get a guarantee on approval of the loan before they even look at your application

Should I borrow money from a friend or relative?
Another way you can technically consolidate your debts is to borrow money from someone you personally know. However, this can be very dangerous. It can easily change the dynamic and trust of your relationship with that person, especially if you fail to pay them back.

It is highly advisable to just not proceed in this direction, unless there is truly no other option. If you want to lend someone money, you should do so using two rules. First, only lend money to someone as a one time offer (don’t make it a habit). Second, lend with the expectation that it is actually a gift. Therefore, you can be happily surprised if the debt is actually paid back.

What is the biggest mistake I can make when consolidating my debt?
Consolidating your debts does not mean your financial woes are over. Many people still make one huge mistake. They continue to rack up debt.

Once consolidating your debts, you need to learn to live without credit. If that means you get another job or live a more boring life, then you have to do what is necessary to break the cycle. It is an amazing feeling to have no balances left on your credit besides one, but don’t let that fool you. Likely, you are already maxed out.

Bottom Line
Debt consolidation is a great option for many people who are struggling to pay down variable interest rate and high interest bearing debts. The thing is, you need to be smart about it and not let the cycle continue. That could mean making bigger lifestyle changes so you discontinue your use of credit cards altogether. Once you consolidate your debt, cut up your credit cards for extra insurance.