Consolidating debts is all about putting it in one credit account. Why? Because we want to simplify the repayment. When debt reaches an unmanageable level, it becomes quite problematic. It can lead you to feel a lot of stress in your life. It can also compromise your health. More importantly, it can reflect negatively on your relationships. It can fights and tension inside the home. This is why you need to make sure that you do not abuse the use of debt.
According to reports, it is easy for Americans to just swipe and pile up on debt. In fact, US households have a total of $815 billion worth of credit card debt. If that is not bad enough, the average American does not just have credit card debt. They also have a mortgage, student loans, and car loans. Some even have a couple of personal loans in the mix.
Without a doubt, debt is deeply ingrained in our society. it is very hard to maximize financial opportunities if you do not use debt. The importance of credit scores is a perfect way to prove how important debt is in our society.
While we might think that using debt is a must, that does not mean we should abuse it. You need to learn how to manage your debts properly. And if you find it to be too difficult to manage, there is one thing that you can do. You can always opt for consolidating debts into one account. This will help make your credit situation more simple and manageable.
Why one account is better when consolidating debts
There are many reasons why consolidating debts into one account is a good idea. If you use it properly, it can even benefit you and your family. Knowing these reasons will help motivate you to begin this debt relief strategy and stick to it until the end. Here are three that you might be able to relate to.
You have too many financial responsibilities to deal with
Our financial responsibilities increase as we get older. Once we graduate we are expected to move out of our parents home to live on our own. That means paying for our own living arrangements, food, groceries, transportation, etc. We need to save up for retirement or the downpayment of the house we want to buy in the future. There are so many financial goals to meet and when you include debt in the equation, things might get a bit too overwhelming.
This is why consolidating debts can be beneficial. Take note that debt consolidation is for people who can afford to meet their debt payments but would like help in managing the accounts. Multiple debts can be quite confusing and stressful to manage. This is why combining your debts can be very helpful. It gives you the convenience and ease of paying only one account. It lessens the stress of managing debts and will give you more time to focus on what is important for you.
You are starting a new business soon
Debt consolidation can help you focus on other things in your life – like starting a business. Since paying off debt does not require too much of your attention, you can focus on following your dreams and increasing your income. Rather than lose time trying to monitor your payments, you can focus on building up your business.
One thing it can also do for you is to help you build your credit score. As you make your payment on time, you might be able to borrow at a low-interest rate for your business loan. Funding will not be a problem for you and will allow you to work on building your company as soon as possible.
You want to spend more time with people that matter to you
Finally, consolidating debts into one account is beneficial because it can make things less strained for you and your family – or even your significant other. According to reports, money is the root of most relationship stress. It does not matter if you are rich or poor. Your debts will take its toll on your relationships because it can limit your financial resources. It also brings stress and tension in the household.
By opting to consolidate your debts, you can make things easier for you to pay off your debts. Not only that, you can spend more quality time with them.
What to watch out for when consolidating debts
While consolidating debts bring a lot of benefits, there are also pitfalls that you need to avoid.
Believing debt consolidation got you out of debt
The first pitfall is thinking that debt consolidation has already gotten you out of debt. While it can get you nearer to debt freedom, it does not pay off the debt. Consolidating is the first step because it simplifies your repayment plan so it is easier to meet your monthly dues. The actual payment of the debt will still happen. It is one of the important financial lessons that you need to know about debt consolidation.
Consolidating your debts to open new lines of credit
Another pitfall that you need to avoid is consolidating debts so you can use credit again. Some people borrow a loan to pay off their credit card balances. They reason out that they want to lower the interest rate of their debts and simplify their payments. However, once the credit cards are paid off by the loan, the card owner starts using it again. This is the worst thing that you can do when you consolidate debts. Make sure you stay away from new lines of credit until after you have paid off your consolidated debts. At the very least, a significant part of that debt should be paid before you consider using more credit. Otherwise, you will never get out of your difficult debt situation.