Consolidating multiple debts is not just about putting all your balance under one account. There is more to this debt relief program than that. If you really want to maximize the positive effects of this debt solution in your financial life, you need to get to know how it can really affect you.
According to reports, Millennials have an average debt of $42,000 and most of it is credit card debt. On top of this debt, they also have student loans. In the future, a home loan will probably be added to that. All of these debts can be overwhelming unless you decide to use debt consolidation. Monitoring all of these credit accounts can be confusing and there is a high chance that you will make a mistake as you go along. If you want to make your debt payments easier, you need to consider debt consolidation and you need to start on it as soon as possible.
But what can you really expect when you consolidate all your debts?
What really happens while consolidating multiple debts
Obviously, consolidating multiple debts mean you are combining different credit accounts into one. You will open a new one and have its funds pay off the other debts. But if you think that this is all there is to it, you are mistaken. Debt consolidation is so much more than just re-organizing your repayment plan.
Here are a couple of truths that you need to know about this debt relief program.
It still requires you to pay for everything
In debt consolidation, there are no short-cuts or reduction of debt. At the most, you can probably lower your interest rate. This will still help you save money on the overall cost of the debt. That means you need to have enough income to pay for your balance. If you are certain that you need to reduce the debt that you owe because your income is compromised, then you need debt settlement.
It will teach you self-control
Another thing that you can get from consolidating multiple debts is learning how to control yourself – specifically when it comes to your spending. If you think that debt consolidation will make it easy, you are mistaken. There will be a huge temptation to use more credit – especially when you see the zero balance on your credit cards. But what you might be forgetting is the fact that your actual debt is not really paid off. You just transferred it to another account. Debt consolidation can lead you to feel a false sense of debt freedom – which is actually quite dangerous. You need to learn how to counter this feeling by instilling a strong sense of self-control. You have to stop yourself from using your credit cards. If needed, you should keep your cards in a place where you will have a hard time getting it. Even if you are tempted to use it, you do not have it with you so that can help keep you from spending.
It helps improve your credit history
Consolidating multiple debts will also help you improve your credit history. First of all, you only have one debt to pay off each month. That will make it harder for you to forget about your payment schedule. When you are not late and you meet your dues in time, it will make your score rise. Not only that, you also have the option to lower your monthly payments so it is more affordable. When you open the new credit account to consolidate debt, you can request for a longer repayment period. This will distribute your debts over a longer period, thus leaving you with a lower monthly payment.
It makes your life easier
Finally, consolidating multiple debts will help make your life easier. According to reports, those with consumer debt and struggling to pay for it feel higher levels of anxiety and lower satisfaction in life. With debt consolidation, the repayment plan is more structured with a fixed payment. That means it is easier to budget how much you need to put aside for your debts each month. This will help you feel more in control of your debt situation. When you are in control, you can make more confident and smarter decisions.
Important reminders when consolidating your debts
As you try to solve your debt problem, it is important for you to recognize facts about consolidating multiple debts that can compromise your efforts. Here are two of the most important truths about debt consolidation that you should always keep in mind.
Choose the right strategy to consolidate debt
There are many options to consolidate your debts. You have to make sure that you know the right one to use. Among your options include debt consolidation loans, balance transfer cards, debt management, etc. Each of these options is effective but you have to know which one is the perfect choice based on your financial situation. If you have a good credit score, you can use a debt consolidation loan. If not, then debt management or a balance transfer card might be the better option. In case you want a shorter repayment term so you can save money, a balance transfer card is the best debt solution to use. Get to know the options so you can make a smart choice.
Keep in mind that this is just a repayment plan
Finally, you need to keep in mind that this is a debt repayment tool only. After consolidating multiple debts, you still have a long road ahead of you. It is important for you to keep this in mind. Your payments have yet to be made. Now that your payment plan is more structures and simple, you should focus on increasing your debt payment fund so you can get out of debt a lot faster.
It is very important that you do not get the wrong assumptions about consolidating multiple debts. This debt relief program can bring a lot of improvement in your financial life – as long as you learn how to use it to your advantage.