Debt consolidation can be a Godsend, especially when you are drowning in debts. Once you consolidate your credit cards, your line of credit, and any other loans that you may have, into a lump sum, there will only be one affordable payment that you may have to make each month and at a low interest rate.
However, it’s imperative to understand exactly what you’re getting into, before signing on the dotted line and consolidating your debt. So here are a few things for you to keep in mind before you seal the deal with your debt consolidator:
Check if you are actually benefitting by consolidating your debts
Go for debt consolidation only if there is an actual benefit. You may have to do your math to find this out. But it is quite simple. Just add up all the payments that you are making currently towards your credit cards and loans. Find out how much you will have to pay if you consolidate them all. Now analyze the difference between these amounts. Here’s a debt calculator tool to help you do the math. If the margin is high and if you are saving a significant amount by consolidating your debt, it makes sense to go this route.
See if you can reduce your expenses
Too much debt can be a result of excessive spending. Get an account of your expenses by creating a budget analysis and you can then find easy ways to cut some of these expenses out of your life. Although you may not be able to do much about your fixed and required expenses, like your electric bill and mortgage payment, you can reduce overspending on entertainment related expenses. See if you need to do away with any of your old habits. Differentiate things based on your needs and wants. If you are serious about repaying your debts, you must make sure you won’t go back to your spending. This is when debt consolidation might work for you.
Research your options
You can choose from different ways to consolidate your debts. There are secured loans and unsecured loans. You can pool your debt on a balance transfer credit card or you can just transfer your outstanding debt onto a new line of credit. Some of this may involve high upfront costs or origination fees.
Apart from debt consolidation there are also other debt relief methods you can choose from. For instance there is debt settlement where you get to settle your debt for less than what you actually owe. You may want to consider the benefits and drawbacks of your options before making your decision.
At Golden Financial Services, their California Debt Relief office does a great job at explaining each debt relief option and showing you the benefits and downsides associated with each plan.
Try negotiating with your creditors
If you are going through a tough financial situation you can approach your creditors to make things easier for you to repay your loan. In case you have established good relationships with them they may even agree to reduce the interest rate or increase the term of your loan, thereby reducing your monthly payment. If this doesn’t work out, you may even ask them to suspend your payments for a few months until your situation improves. Here are step by step instructions on how to negotiate with your creditors on your own and get them to reduce the interest rate and monthly payments.
If debt consolidation is the path you choose, make sure that you only consolidate the debts that have a high interest rate. You can always pay off the low-interest debts on your own. And always check whatever company you’re working with, at the Better Business Bureau, on Yelp or TrustedCompanyReviews.com.