If you want to ensure complete freedom from debt, you need to understand what debt consolidation red flags are. These are simply the signs that will tell you if this particular debt relief program is the right one for you.
Sometimes, people force themselves to consolidate debt – only to end up failing at it. They assume that there is something wrong with the debt relief program when in fact, it was never a good match, to begin with. Debt consolidation is an effective way to get out of debt but it is only perfect under the right financial circumstances. You should also have the right personality and mindset to be able to succeed in using this to get out of debt.
To find out if this is the right debt solution for you, it is important for you to spot debt consolidation red flags.
But what exactly are these?
Debt consolidation red flags
There are many signs that will tell you that debt consolidation is not the right solution for your current credit issues. It is actually a mix of your specific financial situation and also your personality and habits. Here are some of the signs that you need to look out for.
You cannot control your spending
According to reports, Americans are feeling confident about the state of the economy. When you are confident about your finances, it will make you bolder and encourage you to take more risks. That can increase the chances that you will use more credit. When you have multiple debts, that is a sign that you cannot control your spending and that is dangerous when you are using debt consolidation.
Consolidating debts can give you a false sense of being free from debt. For instance, if you consolidated multiple credit card balances, that would leave you with several card accounts with zero balance. When you look at that, it would feel like you have already paid off your debts. But the truth is, you just shifted the balance into another account. If you focus on the zero-balance card, you will feel tempted to use it. There is a stronger pull when you cannot control your spending urges.
So unless you are sure that you can control your spending, you might want to think twice before consolidating your debts.
Your income is not enough
Another one of the debt consolidation red flags that you need to look for involves your income. It has to be clear that consolidating debts will not reduce your balance. There are times when it will even increase it slightly (e.g. balance transfer fee). The bottom line is, you still need to pay for the whole amount that you owe. So if your income is not enough to meet your payments, then using debt consolidation might not be the best strategy for you. You may be better off using debt settlement because it involves negotiating with creditors and lenders so they will allow you to pay only a portion of what you really owe.
You do not have a household budget
A household budget is one of the financial habits that can affect your debt consolidation efforts. If you are not using a budget plan that is another one of the debt consolidation red flags that should make you reconsider this debt solution. When you have a budget, you have control over your finances and you can guarantee that your consolidated debts can be paid off regularly. Without it, you can easily forget about your credit obligation.
There is an option for you to get professional help so someone can help you keep track of your payments. Of course, this will be more costly and it might not be something that you can afford at the moment.
How to address these debt consolidation red flags
If you see any of these debt consolidation red flags, you need to be proactive in solving them. Here are some of the things that you can do to solve these issues so you can qualify to consolidate multiple debts.
Put together a budget
Start by creating a realistic household budget. Believe it or not, only 4 out of 10 Americans use a budget. The rest are not making an effort to track their personal finances. If you want to improve your chances of successfully using debt consolidation, you need to get used to using a budget plan. At the very least, this budget will ensure that your debt payments are funded. If you do not have enough money, you can look at the expenses on your budget to see which of them you can remove.
Look for ways to increase your income
Another way to ensure debt consolidation success is to increase your income. One of the debt consolidation mistakes that you can make is to allow your debt payments to put a strain in your budget. This can make the whole ordeal stressful and can compromise your ability to completely pay off your debts. If you cannot make your monthly dues smaller, you just have to increase your income.
You can start by organizing and decluttering your life. Sell whatever you do not need. Use the profit to give yourself some extra money. Or you can take extra shifts at work to earn more. You can talk to your employer to give you more projects to help you with your financial needs.
While the debt consolidation red flags may be daunting, it is not impossible to deal with them. Even if you have these signs, you can overcome them as long as you know what you are doing.