Debt consolidation is a debt solution used by people who are looking for debt relief. However, not all debtors will benefit from this debt solution. There are even people getting their debt situation worse after consolidating their debts. Therefore, the solution only works if you are using it right. If you are considering debt consolidation as your debt solution, then you need to learn how to use it at your advantage.
Commonly, a debt consolidation process involves combining all your debts and paying them off with a consolidation loan. In other words, it involves transferring an existing multiple debts into a new loan that may relax your current debt situation, but it may not help in total debt payment, unless you know how to benefit from the solution to your advantage. Let’s discuss in the next section on how it should work to benefit you:
1. Set a right mindset
Those debtors who failed to benefit from a debt consolidation generally thought that it is done once they get a consolidation loan to payoff their debt. In fact, it is not. Once you accepted a consolidation loan and get the old debts payoff with the loan, your debt is not erased yet because you have to pay the loan payment every month until you pay it off. Therefore, you have to set a right mindset when consolidating your debts into a consolidation loan. Don’t add new debts while you are clearing the loan, else you will make your debt situation worse.
2. Use it to clear you debt faster
Basically, you can achieve 2 purposes with a debt consolidation, either clear your debt faster or lower your monthly payment. In order to really benefit from debt consolidation, you should prioritize on clearing your debt faster, unless the current debt payment has burden you. When you are deciding a consolidation loan, you may choose a longer repayment period to lower your monthly payment or you can select a repayment term that has monthly payment equal to your current payment amount, which has shorter repayment period. The second option will really help you to save some good amount of interest while clearing your debt faster.
3. Carefully choose a debt consolidation program that works
Be aware! Not all debt consolidation programs are really done what they claim. Many of these programs are advertised in very attractive way to get you sign up with their plan that comes with various hidden costs that may worsen your debt situation. Therefore, you should compare a few plans and understand the details of the loan agreement before you put your signature onto the dotted line of the agreement.
4. Find a good consolidation that saves money
The rule of thumb, a good consolidation loan should have lower interest rate than the average interest rate of our existing debts. If vice versa, then move on. Most often, the loan may involve some fees, like enrollment fee, monthly fee & other fees, which you should take into consideration when you deciding a debt consolidation program that fits your needs. Watch out for hidden costs! Many people will tend to overlook this portion, causing them to pay more when consolidating their debts.
Debt consolidation is a debt relief solution that may benefit you if you use it right, or may worse your debt situation if you miss-interpret its advantages. Therefore, it is important for you to understand how to use debt consolidation at your advantage to get rid of debt effectively.