If you've found yourself with a significant amount of debt, you may be considering a route to consolidate all your current balances into one monthly payment. It's easy to get wrapped up in the idea of consolidation: one low-interest, easy -to-make payment that eliminates all your monthly stress. However, unless you plan to consolidate for the right reasons, you can actually end up in deeper water than what you started. Before you decide to merge your loans, answer these three questions honestly and see if you're in the right mindset to start relieving your debt.
1) Why do you want to consolidate?
Are you looking to free up extra cash each month? Do you want the ability to start saving more and allocating more money towards your loans? Do you want to become debt-free? Unless finding debt freedom is one of your main goals from debt consolidation, you may want to re-evaluate your plan of attack. Freeing up more money to spend each month, without proper regard to the state of your finances, means you're in for a hard road and will probably end up in a hole you can't dig back out of.
2) What consolidation plan works best for you?
There are many different types of debt consolidation plans. A loan specifically designed for consolidating other balances is a better choice than a 0% interest credit card unless you plan to stop using your credit cards entirely. Even then, most credit cards have such small minimum payment requirements that It can literally take decades to pay off the balance. When deciding which type works best for you, your main concern should be finding a payment and term that is lower than that of the majority of your current loans. If a consolidation loan doesn't help reduce how much interest you pay over the life of the loan, it's probably not a good idea.
3) Will you stay strong toward your debt free goal?
You may say that your goal to be debt-free is all important and will determine your financial behavior from now on. But when you find something you really want, will you be able to resist the old temptation to swipe your plastic? If not, you may want to avoid consolidating at this time.
If you really are ready to feel what it's like to be debt free and are ready to commit to new spending habits, be sure to contact FCU - we can help you organize your goals and create an action plan that will help you follow through.
Have you considered consolidating your debt? Tell us about it in the comments below!
If you like this article, be sure to check out " 3 Steps to Digging Out of Debt"