Proper debt management is perhaps one of the most difficult yet important responsibilities of adulthood. As useful as applying for loans and credit cards is, paying them off can prove to be a headache. If you have multiple debts to think about, consolidating them into a single loan can help you repay them more efficiently.
But debt consolidation isn’t always the best solution to pay off your debts since the right method depends on your circumstances and financial situation. To help you decide, check out these five signs that you need to consolidate your debt. If you notice one or more of these apply to you, it’s high time to get a new loan.
You tend to forget when your monthly bills are due
Keeping track of your monthly dues can be challenging, especially if you have balances across multiple credit lines. Unfortunately, even a single missed payment can hurt your credit score. So if you find yourself forgetting when your bills are due, debt consolidation will simplify the repayment process for you.
By combining everything into one loan, you no longer have to worry about staying on top of different deadlines and balances. All you need is to make one monthly payment, reducing the likelihood of missing payments. Another advantage is you’ll likely pay less per month since you have a longer repayment term for the debt consolidation loan.
Your debts have high interest rates
Another sign you need debt consolidation is if your current debts have high interest rates. Credit cards are notorious for this, with their average interest rate standing at 16.45%. So if you have multiple cards and you’re only making minimum payments monthly, your debt is bound to snowball from the accumulated interest.
In this case, debt consolidation will help reduce the burden of excessive interest charges on your finances. Take note that the new interest rate you get depends on your loan credit report and loans credit history, but you’ll generally be able to find one lower than that of your credit cards.
You already have a high credit score
If you’re struggling to repay your debts but already have a high credit score, it’ll be a good idea to consolidate your debt. Generally, having good credit enables you to qualify for the best financial products, including debt consolidation loans. So with excellent credit, you’ll be able to get the lowest interest rates available.
This is not to say that you can’t apply for a debt consolidation loan with a lower credit score. Some lenders still honor applicants with less-than-ideal credit profiles but usually give higher interest rates for these cases. If this is where you’re at, compare loan offers thoroughly to ensure that you still get a lower interest rate than what you have now. Otherwise, consolidating your debt will do more harm than good.
You need at least six months to repay your current debts
Debt consolidation is usually best for debts that take a long time since you’ll benefit significantly from a lower interest rate. If you can quickly pay off your debt, this option might not be worth the hassle.
So before you start searching for loans, use a debt payoff calculator to estimate how long it’ll take to repay your current debts. Just input the balance, interest rate, and monthly payment you make per month to calculate the payoff time. If it amounts to at least six months, it’s worth considering debt consolidation to avoid racking up your interest.
You have a plan to become debt-free
It’s important to remember that debt consolidation doesn’t eliminate debt. It’s merely a technique that reduces the burden of high-interest debt by combining all existing debts into a lower-interest loan.
Thus, you should only opt for debt consolidation if you have a debt management plan. For example, if you continue overspending on your credit cards while paying off the debt consolidation loan, you fall back into a mountain of debt. In the end, you’re back to where you started, and the situation repeats over and over until you plan your finances and change your spending habits.
Seek Financial Advice from an Expert to Plan Your Finances
If you have trouble managing multiple debts, debt consolidation can help you get out of the never-ending cycle of payments. However, before jumping straight into a loan application, assess your financial situation first and consider how you’ll repay your debt. Prudent Financial Solutions can help you plan the specific steps to work your way to becoming debt-free. Contact them at (877) 612-9483 for a free consultation.