Nobody likes to be in debt. Even more so, nobody likes to be in so much debt that they are struggling to make sure all the bills are paid on time. Fortunately, there are a lot of options for you before you make the ultimate financial sacrifice and file for bankruptcy.
Debt consolidation is little more than combining all of your debts into one place. It's a way to lower your overall interest rate, cut down the number of checks you have to write, and ideally get out of debt faster.
But are you a good candidate? Here are 8 signs that debt consolidation will work for you.
1. You Forget to Make Payments
Most people don't forget to pay on debts each month. They pay their mortgage, their student loans, their credit card bill, and most of the utilities are automatically drafted from their bank or charged to their credit card. If you have so many debts that you're paying on that some of them slip through the cracks, you probably need to consolidate.
2. You Have Multiple High Interest Loans
Debt consolidation works when you have high interest debt. When they are consolidated, your overall interest rate needs to be lower than the average interest on all of your other debts.
3. You Consistently Transfer Debt to Zero Interest Balance Transfer Cards
If you're always chasing a lower interest rate, it's a good idea to knock things out completely. Consolidate all the debt into one location, and then ruthlessly pay it off.
4. You've Been Contacted by a Debt Collector
Nobody wants to deal with debt collectors. If they are doing their job right, then you need to make good on the debt (learn how to deal with collectors here). Your best bet is to consolidate before it all goes to collections.
5. You are Paying Debt with Credit
When your credit card bill comes in, are you paying it with another card? Are you playing the credit card shuffle game? Consolidate it all to one low-interest loan, and then destroy those cards so you don't rack up more debt!
6. You Have Trouble Determining How Much Debt You Have
You know about what you owe on each loan or credit card, but you have to sit down with a pen and paper and go through a stack of papers to tally up the total amount. Having it all in one place makes totaling it up easy.
7. You Decide Each Month Which Debt to Pay the Minimum
Each month you have a minimum to pay on each debt. Some debts you pay more than the minimum, on others you have to decide that you will pay just the minimum. Getting everything in one place makes it easy to decide where to pay.
8. Your Payments are Growing Each Month
Even though you're paying down your debt, your payments continue to grow (due to accumulating more debt, or not paying enough on existing debt). That's the opposite of what you want to happen.
A Debt Consolidation Warning
If you're planning to use a debt consolidator to make sure that your debt gets wiped out faster and you're spending less in interest, then there are some important factors to take into consideration.
- Is there an origination or early payment fee? This could make it so the consolidation isn't worthwhile.
- Are you extending your repayment time period? Lengthening the time on the loan may mean lower monthly payments, but overall you pay more.
- Are the interest rates fixed? Adjustable rates almost always mean low rates now, and high rates later.
- How is your credit? Discuss this with the reputable consolidation company and make sure consolidating won't hurt your credit.
- Have a debt-free plan before you consolidate. Otherwise, you will end up back where you started before consolidation.
Financial freedom can only be attained if you wipe out the debt. Debt consolidation may be the right choice if it helps you get rid of the debt faster and helps you pay less in overall interest expenses.