How to Know It’s Time to Consider Debt Consolidation

Most earners never set out to get into financial strife. It can happen for any number of reasons, such as a sudden income drop or a lack of education that sees them living beyond their means.  In some situations, people toil away and pay off their debts as best as they can, but it can quickly become overwhelming. Some people end up with so many outgoing expenses that they can’t keep track, while others end up making interest-only payments without realizing they’re getting no further ahead. 

Debt consolidation can be a worthwhile option for many people, but not everyone knows when they’ve reached that point. You might consider it a feasible choice for your situation if you can relate to any of the following scenarios.

Improve Your Credit Score

There’s no denying that debt consolidation loans can temporarily decrease your credit score. This happens when you close accounts you’ve consolidated, and lenders have fewer data points to draw financial conclusions from. 

However, this dip is usually only temporary. Once you’ve started reducing your debt burden in earnest, you might find that it bounces back within a few months and might even improve with time and responsible financial decision-making. If it doesn’t, you can start exploring your credit repair options. 

A Large Amount of Debt

Debt consolidation generally wouldn’t be worthwhile if you only have a small amount of debt you can pay off in just a few years. However, if you have a considerable amount of debt that comes out of your bank account in multiple payments, it might be worth thinking about. Rather than paying multiple loans at once, which can sometimes be overwhelming, you can merge them all into one and enjoy one convenient weekly, fortnightly, or monthly payment with one set interest rate. 

High Interest Rates

The interest rates of some loans can be so high that many people struggle to get ahead. You might make the minimum payments each week, but that’s sometimes only covering the interest portion of your loan and not much more. 

If you don’t believe you’re getting any further ahead with paying off your loans due to high interest rates, debt consolidation might be the solution you’re looking for. You’ll only have one interest rate to remember and can make a conscious effort to pay off the loan principal. As a result, you might end up paying off your loan quicker than anticipated. 

Plans to Improve Your Financial Situation

Over 70% of Americans don’t regularly follow a budget. While many financial therapists say you don’t always need to have one, it’s worthwhile to consider if you haven’t been responsible with your finances in the past and want to make a change. 

Debt consolidation can sometimes be an ideal option for people actively trying to improve their financial situation. If you’re already putting other steps in place to reduce your expenditure and make wiser decisions, you might be well-positioned to service a single, large loan. Typically, those who consider debt consolidation also reduce their weekly spending, take on higher-paying jobs and don’t request additional loans while paying off their current ones. 

Reduced Stress

Money is one of the leading causes of stress, with at least 72% of Americans saying they have been stressed about money in the last month. Consolidating debt might not get rid of money-related stress, but many people feel more in control of the debt they have when it’s from a single source. 

Rather than seeing multiple companies taking money out of your bank account each month, you get to watch a single company taking one payment with manageable repayment terms. You also have a fair idea of when your loan will be paid off, which tends to be harder to determine with multiple loans. 

You Can’t Keep Track of Your Current Loans

It’s easy to obtain loans for many different things, such as cars, houses, and other personal expenses. Before you know it, you’ve got multiple loans, and you’re struggling to track when they’re coming out of your bank account and when you’ll have them paid off. 

Not being able to keep track of your current loans can be a recipe for disaster. You might fail to make sure you have enough in your bank account to cover your outgoing expenses, and you might even forget to make payments when so many companies take funds out of your accounts on different days.

Debt consolidation is not a suitable option for everyone, but there’s every reason to believe it might be right for you. If you can relate to any of these situations above, it might be time to explore your financial options and see if you can experience some relief from your pecuniary problems.

Steven Millstein
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