It is normal to have a good number of financial obligations in life but for those who are unable to manage the number of payments they are making, debt consolidation becomes a good option. Simply put, the process helps consumers combine their debts under one account. This makes it easier because people consolidating their debts can expect to worry about one a single payment amount, one due date and one interest rate.
There may be different kinds of debt consolidation but before you go into what works for your, it is best to have a clear understanding of how it really benefits you and your finances. It is one of the most used debt relief options by consumers simply because it is a great equalizer for their needs. The consumer’s need to simplify their debt payment and help them keep up to date.
This is more crucial because as Nerdwallet.com shares, households nowadays are averaging about $130,922. This is a big amount where the biggest pie usually goes to the mortgage loan. This also includes student loan debt, credit card loans and other types of debt. Debt is already a big part of life and the most that can be done is to manage repayment in these accounts.
Debt consolidation benefits
With this, consolidating debts is one of the options consumers have in helping them manage their repayments. Here are some of the things you can expect when you decide to consolidate your debts and enjoy an easier payment schedule.
- You get to manage your payments better. Debt consolidation ultimately helps you manage your payments better because it combines all those details into one set of information. Imagine if you have five qualified debt accounts for consolidation, you get to do away with five different sets of information. You no longer have to try to remember five different due dates and five different amounts. You also do not have to compute as well whether the interest rates on those five accounts are being computed correctly. When you consolidate these accounts, you now only have to keep in mind of one set of information. One due date for one payment amount being assessed on interest rate. That helps you manage your payments better.
- You do not miss any payments. The idea when you enter into any debt relief program is you get a handle on your payments. You do not miss any more which can complicate your financial situation. Debt consolidation gives you the chance to not miss any payments with the way it structures your financial obligations. It combines everything in one place so you get to pay all of them all at the same time. But one thing you need to remember that at the end of the day, it is just a tool. A hammer will not pound away on the nail sticking out on your wall. You need to put in the effort. The same with consolidating your debts because you need to put in an effort to not miss payments.
- You have more time to do other things. If you had to manage and juggle five different debts every month and make sure they are all paid up and up to date, it can take a toll on another important resource – time. As you try and manage and process a lot of payment information, you might overlook the fact that it takes time away from some of the things you could do. It can be an online class you need to polish up on some skills or even time for your kids at home. The less details you have to worry about when it comes to your debt payments, the more efficient you become in managing your time at home and even for your professional advancement
- You can easily monitor your payment status. Every now and then, you would want to get a snapshot of things in your life and this includes your debt payments. This becomes more important as NFCC.org shares that there is only about 25% of American consumers who pay their bills on time. Rather than trying to look through several details about multiple debt payments you need to make, consolidating your debt makes it easier for you. You just look at one set of information and you can verify if you are on time or not. You can also look at how far along you are in paying it off and you can make decisions from there. Do you make extra monthly payments or can you make extra principal payments? All these because you can monitor your finances easier.
What to avoid when consolidating debts
It is a good idea to have a clear understanding of what debt consolidation can do for your finances. Once you have enrolled in the program, here are a few things you might want to stay away from so you can maximize the advantages of the program.
- Getting delayed on your payments. One of the things that you wanted to address with the program was you ability to meet your payments simply because there was too much you had to remember. Now that you only have less debt account to keep in mind, you must be able to stay on top of them. Do not be delayed with payments simply because you forgot. You should now have an easier time keeping track of your payment schedules and meeting your financial obligations.
- Adding on more debt accounts. You might have experienced how it was dealing with debt collectors in the past and if you want to stay away from them, you should manage your payments. Now that you have consolidated your debts, you might think that you have extra room in your budget to take on new financial obligations. You should remember that you just consolidated your debt and not really made everything disappear. Adding on new payments will only make matters worse if you are already running on a tight budget. Pay off some of your existing debts first before you consider adding new ones into your budget.
- Letting your credit score go south. This affects the interest rate you can get in the future. The better score means the lower rate you can get when you choose to consolidate loans again. One way to help you monitor your score is to take advantage of one free copy every 12 months as stated by FTC.gov. Taking a look at your credit score helps you manage expectations and gives you the chance to spot errors and other mistakes in your report. This gives your the ability to correct them early on so it does not affect your score.
Debt consolidation is a great option when you are already having troubles managing your payments. It might not work if your budget is not enough for you to meet all your payments but it works best if you can make the payments and just need help in managing it. It can help you be more efficient with your payments which can ripple out into other areas of your life like your time at home. The more you can finish your payments in just a small amount of time, the more time you will have for other things in your life.