Is It A Good Idea To Consolidate Debt Towards The End Of The Year?

consolidate debtAs the year starts to close, you might be wondering if it is still a good idea to consolidate debts. Is it better to simply wait at the start of the year or do it now? Are there benefits if you postpone it for next year or is it the same if you start with it before the year comes to a close? These are just some of the questions you could be asking about debt consolidation.

This can be a common question for people who are neck-deep in debt and just wants to manage their payments. It is quite frustrating to try and keep up with multiple payments every single month. Debt consolidation is a great repayment program but you need to know if it is the most appropriate solution to your financial need.

Why will you consolidate debt

As you try and explore this program and think about using it, you need to understand the program in relation to your current financial situation. Though it is one of the most sought-after repayment programs by consumers, it is still not a solution for all your problems. This is important because consumers are racking up high debt amounts again. According to Washington Post, credit card debt in June this year breached the $1 trillion mark. Here are some instances when debt consolidation could work in your favor.

You want to take control of your monthly payments

If you are trying to juggle multiple credit card payments and you are already losing track of some of them, consolidating your debts could be a lifesaver. It will help you keep track of your payments. This is because you put everything under one card where you only have to worry about a single payment on one due date every month.

Another advantage this brings is that you do not run the risk of overlooking payment due dates.  This is because the more payments you have to worry about, the higher the chances that you could miss one of them. This is actually one of the problems brought about by having many credit cards. There are consumers who are able to manage multiple credit cards. But once they start to pile up and the payments seem more than you can handle, it would be a good idea to consolidate debt and put them on one account.

You want to take advantage of lower payment

If one of your credit cards offers low to even zero percent interest rate, it is a good idea to consider using that to consolidate your debt payments. For one, you get to save a lot on interest payment. That is a great boost to your finances towards the end of the year. Rather than the money going to interest payment, you are able to save it for the holiday expenses.

One thing you need to be careful though when deciding to consolidate debt onto a new card with 0% interest rate is the timeline. More often than not, you might think that the payments will be the same forever. However, these are usually introductory offers by card lenders and has an expiration date. After that, regular interest kicks in.

You are expecting extra money before the year ends

lady putting money in a walletThere are times when the end of the year means a big boost to your finances. It can come from bonuses at work or even an increase in demand for your side hustle job. It is also possible that you are expecting a pick-up in your sales due to the holidays for your business. These are some of the possible sources of unexpected money before the year comes to a close.

With these in mind, you can choose to go into debt consolidation so you can pay off a significant amount on your debt obligations. As they now are all under one account, it is easier to pay them down all in one go. This is easier rather than tallying up all your debt payments and trying to equally make payments to all of them.

Do not consolidate your debts for these reasons

As much as debt consolidation is a great program, it is not for everyone. Now that you have an idea on the types of situations where it is to your benefit to consolidate debt, here are a few instances when you should think twice about it.

You just need to free up your card to shop for the holidays

The holidays are fast approaching and there is no question that this is one of the most expensive times of the year. In fact, according to the The National Retail Foundation, 2016 saw about $655.8 billion sales and expected to increase this year. That being said, you might already be looking for ways to pull resources together to buy everything you need.

If you want to consolidate your debts just so you can free up your credit cards would land you in a heap of trouble. For one, you are operating on a false sense of available financial capability. You only have an available credit on that one card because you transferred the balance to another card. One way to understand this better is using your two hands.

Say you have one ball each on both of your hands but you want another ball. What you do is put one of the balls into the other hand to free up one hand. Once you get another ball in your free hand, you now have three balls. Now think of those balls as debt obligations – you only moved them around so you can borrow more. This approach can put you in debt real soon.

You want to take advantage of credit card rewards

Chasing your credit card rewards is never a good idea. At the most, your rewards and perks should only enhance your budgeted expenses. You assign the cards to specific expenses to maximize rewards. Once you start purchasing just to earn points then you are hooked. You are no longer looking at what you are buying and you are simply focused on the total amount. If this is you, choosing to consolidate debt to free up your cards can spell trouble.

You just want to show off

This is one of those instances where you simply want keep up with people around you and show that you can also purchase the things they buy. It can be a lot harder now that people are going to be buying items left and right. In your bid to keep up and maintain a front of having a lot of disposable income, you end up consolidating credit card debt to use some cards for shopping. Needless to say, you will be facing a big monthly statement at the end of the month and could be in big debt because of this.

There is never a bad time to consolidate debt, just bad intentions and if you feel you can benefit from combining your debt obligations before the year ends, then do so. If you are going into debt consolidation just to free up some of your cards for shopping, then you should rethink your financial strategy. That is a sure way of ending the year in the red.