Are you currently considering consolidating debt?
Before taking even the first step to consolidating debt, there are a few things to which you need to give some serious thought.
My Story
Recently I received a newsletter in my email extolling the wisdom of taking out a personal loan to consolidate debt.
The newsletter included testimonials from individuals stating how life changing consolidating debt had been for them.
What the newsletter left out, and what I believe is crucial, are the things that require serious thought before making the decision to consolidate debt.
While consolidating debt can be a good thing for some, for others, it makes a bad situation worse.
Things to Think About
How Did You Get Here?
What brought you to the point that you need to consolidate debt?
Without answering that question, it’s likely you’ll end up with new debt on top of old.
Review Credit Card Statements
Be ruthless. Pull out a year’s worth of credit card bills from every credit card that has a balance.
Figure out where and why the overspending occurred.
Don’t consider consolidating debt until you can answer the question of how you got here.
What Will You Do Differently?
Next, figure out what will be different post consolidation.
It’s so easy to make the statement that you’ll quit using credit, but it’s a hard habit to break.
Without a plan, nothing will change.
Create a Spending Plan
Before consolidating, set up a new spending plan.
Make sure the updated spending plan includes the new loan payment.
If you’ve never set up a spending plan, start with a Zero-Based Budget.
Whatever plan you use, make sure it includes tracking every penny.
Have A Trial Run
Before consolidating, give the new spending plan a trial run.
If the new spending plan is a fail, nothing will change after debt consolidation.
Except for the addition of new debt.
Is Consolidating the Best Option?
When you’re drowning in multiple small payments, consolidating debt can seem like the only way out.
Always remember, there is very seldom only one way.
Working directly with creditors to lower interest and payments is an option.
Using a debt snowball (paying off smallest balances first), or a debt avalanche (paying off highest interest balances first) are both valid options.
The truth is that there are multiple plans to pay off debt and using a debt consolidation loan may not be the best.
Before deciding, seek professional help.
Reach out to your local bank or credit union and ask for direction.
Are you currently considering consolidating debt?
Before taking that final step, make sure you’ve given serious thought to how you got here, what you will do differently, and whether or not consolidating is the best option for you.
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