4 Big Mistakes When Consolidating Debt

Debt consolidation can help to reorganize your finances and lower your monthly payments.It can make things easier to pay back what you owe .If you make mistakes while consolidating, it can lead to increased, longer-lasting debt.

Here are four notable and common mistakes that borrowers make when consolidating debt.

1. Not Thinking About How You Got Into Debt

Fixing your finances is like treating an injury, or  repeating the same mistake. If you don’t review what happened, or examine your current habits, you might hurt yourself in the same exact way again.. The misconception about debt is that it always comes down to careless spending and bad money habits. In reality, many debt problems start with an unexpected expense or an emergency, such as a home or car repair, hospital stay, divorce or family death. You may be able to throw that payment on a credit card or delay payments in the short term. Unfortunately, these debts can become overwhelming if you don’t have an emergency fund or a repayment plan.. In addition to researching your debt consolidation options, you should take the time to analyze your spending, clean up your finances and set up safeguards to protect yourself in the future.

2. Consolidating Without a Plan

Consolidating your debt is only one step in your debt-free journey. Once it’s all in one place, whether it be on a new credit card, in a consolidation loan or part of a debt consolidation program, you’ll need to start making payments towards that debt. Ask yourself the following questions:
  • Do you know how much you’ll put towards debt repayment every month?
  • Are you planning on putting extra money like bonuses, tax refunds and cash gifts towards your consolidated debt?
  • Have you updated your monthly budget to include debt repayment?
  • Do you need a second job to increase your monthly payments?
  • Can you make cuts in your spending and redirect the spare cash towards your monthly payments?

3. Late Payments on Transferred Debt

If you choose to consolidate with a credit card transfer, it’s usually to take advantage of a lower promotional interest rate. Unfortunately, these promotions come with a time limit. If you don’t pay back what you owe before the period ends, you’ll be hit with the regular interest rates and owe even more.These rates can be much higher than the consolidation rate. Plan to pay off the outstanding debt as quickly as possible.

4. Not Working With the Right Professionals

One of the biggest mistakes that consumers make is not reviewing their financial situation with a debt consolidation professional. Choosing the right person is tricky, and many don’t realize that they don’t have to figure it all out on their own. Most trustworthy debt consolidation companies provide free consultations, allowing those in debt to review their options and choose a debt consolidation plan that best fits their needs. Check out our list of the best five available to get you started.

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