4 Reasons Why Debt Consolidation Will Not Work

4 Reasons Why Debt Consolidation Will Not WorkThere are pessimistic people that will quickly point out that debt consolidation will not work and you would be better off sticking to your regular payments. They would rant off about how ineffective the program is and that it did not really help them out. Their debt situation is still the same and for others, even worse than when they started the program.

It might sound like a black propaganda from the point of view of consumers who benefited from the program. For those that are still considering the repayment tool, it could be enough for them to start looking somewhere else. However, there is some truth to why debt consolidation would not work for some people.

It is important to take note of your current financial situation as well when considering debt consolidation. It can help you understand if the program is a right fit for you or not. That being said, here are a few of the reasons why

If your income cannot cover existing debt payments

A debt consolidation program basically combines all, if not most of your debt payments under one account. What you get out of the program at the beginning is convenience. Rather than spreading yourself out too thin attending to different debt payment accounts, you get to focus on just one payment account.

However, if you are already having a hard time meeting your payments simply because you are not earning enough, it might not be the program for you. Debt consolidation will not work if you are trying to lower down your payment to make ends meet. Yes, it is possible to lower down your payment with it but it might not be enough.

What you need to look out for is increasing your income or looking for ways to lower down your expenses. You can try to monetize your hobby or take on a second job. Why not ditch the cable as well and just stream the movies you want to watch? You can also bike to and from your place of work to save on gas.

If you have an impulsive buying behavior

Another instance where debt consolidation would have a hard time helping you is if you have an impulsive buying behavior. This is not an easy characteristic to deal with and addressing the issue can take some time. This is why debt consolidation will not work for you if you keep on accruing debt as fast as you pay them down.

The problem would start as soon as you consolidate your debts. If it is for your credit cards, you would be transferring your balances on one card. Once your other credit cards reflect zero balances, you might start to buy things left and right again. Sooner or later, you would find yourself back in debt in addition to your consolidated loan.

If you know for a fact that you have an impulsive buying behavior, you need to address that issue first. Look at what triggers your behavior and do something about it. If you have a weakness when it comes to online shopping, do not save your credit card information online to make it a little harder to quickly make a purchase. Try to control your emotions and stay away from temptations.

Debt consolidation will not work if you believe the program is a way to free up credit

Similar to the situation above, debt consolidation might be a challenge if your main objective is to free up credit. This begs the question why you want to do it in the first place. If you just want to start with a clean slate, you are better off paying your balances down. If you need to free up credit on some cards to be able to shop, then this is not a smart idea. Especially when you realize that American households carry an average of over $137,000 in debt according to USA Today.

You need to understand that once you consolidate your debts like in your credit cards, your balances does not go away. They are just on a different account. If you start charging purchases again on your cards, you are just putting yourself in bigger trouble. As you try and make payments on the consolidated loan, you will have to make payments on the new charges as well.

If you plan close old cards to resist buying temptation

You might want to cut up old credit cards because you want to curb your unnecessary spending. This is a noble goal but the end simply does not justify the means. Especially when you start talking about your credit score. Debt consolidation will not work if you have the wrong objectives in mind. It can even put you in a worse financial situation.

One of the bad side effects of cutting up and closing old credit cards is that you lose the payment history attached to it. This is one important factor credit reporting bureaus use in computing for your credit score. The longer payment history you have, the better it is for your score. One thing you can look into is to just keep them without having to close them. You can use the cards from time to time but remember to pay the whole amount once the statement comes in.

How debt consolidation can help your finances

Now that you have an idea why and how debt consolidation will not work for your finances, here are a few of the ways it can actually help you.

It gives you the chance to focus on other areas of your finances

Once you consolidate your debt, you essentially combine them into one account. Once that happens, you now have the chance to focus on other areas of your finances. Rather than losing all the time trying to monitor and send payments out to different lenders, you can now use that time to try and increase your income. You might have enough time now to earn off of your hobby or simply take on a second job.

It allows a lower monthly payment

This is one of the benefits of debt consolidation but it should not be your ultimate goal. As your monthly payment goes down every month, you can now extra funds into other accounts. Why not consider beefing up your reserve funds? The more you have in your emergency account, the better you can handle unexpected situations in life. You can add to your retirement fund so you can retire earlier.

It can give you a lower interest rate

If your credit score has improved over time, debt consolidation could yield a lower interest rate. This means that your payment for your consolidated loan can be lower without having to stretch the repayment period. This means you get to pay off your debt a lot sooner and you get to save money on interest payment as well.

There are instances when debt consolidation will not work for you especially when you have the wrong motives. It can put you in a more serious situation and getting out will be more challenging. Debt consolidation is one of the most useful repayment programs out there. You just have to make sure that you are doing it for the right reasons so you do not put your finances in more peril than it already is.

Why A Debt Consolidation Program Matters?

Why A Debt Consolidation Program Matters?A lot of people are unable to manage their debt payment that is why going into a debt consolidation program has become a popular option. Debt is already a constant in any household budget. As such, dealing with it is already a necessity nowadays. It is not enough that you pay the minimum on all your debt accounts.

This keeps you current but it also keeps you in a perpetual state of debt payment. Minimum payment gives lenders the chance to charge you multiple fees on your account. There will be times where you end up paying a lot more on interest and fees rather than your original principal amount. As your payment progresses, you only get to pay a small portion of the original borrowed amount.

This prolongs your payment and the more pay in interest as well. This is just one of the reasons why you need to make sure you manage your debt payments well. Borrowing money is not always the cause of your financial problems. There are times when the repayment that follows afterward is to blame. This is why getting into a debt consolidation program can be a great tool for getting your finances in order.

Here are a few things to look into when you want to consolidate your debts under one account.

It helps you manage your payment

Getting into a debt consolidation program can greatly help you manage your monthly payments. It can be a struggle to try and keep tabs on multiple account payments every month. What’s worse is that if you overlook one account, it can come back to haunt you. Your lender can start charging you interest as well as fees and other types of charges. Forbes shares that there are a number of fees associated with a credit card.

One other problem you potentially face when you are trying to keep up with your monthly payments is mixing one payment with another. It is highly unlikely that you have exactly the same amount to pay for two lenders. So what can happen is that you overpay one and underpay another. The problem is when you pay less than the minimum, you can be slapped with fees as well.

Consolidating your debts can help you address these payment issues. This is because once you combine most, if not all your payments under one account, you only have one set of details to keep in mind. Rather than stressing yourself about 5 or 10 different payments every month, your focus now will be on one payment date and one payment amount.

It gives you the chance to pay a lower amount

Going into a debt consolidation program also gives you the ability to send out lower payments every month. This can be a big deal if you are treading on a shoestring budget and every excess fund at the end of the month is a heaven sent. The chance to make lower payments every month can be the deal breaker.

This is one of the benefits of debt consolidation but you need to understand how it is able to do that. For one, you might have a better credit score compared to the time when you took out or incurred your debt obligations. This is because a higher score usually leads to a lower interest rate. The lower your interest rate is, the lower your overall payment could be.

Another reason why consolidating your debts can result in lower monthly payment is because you spread out your repayment period for a longer time. The longer you stretch it out, the smaller your payment can be. However, you need to understand that there is a downside to this. The longer it takes you to repay your debt, you end up paying a bigger interest over the course of the loan.

Debt consolidation program helps your credit score

Another advantage of consolidating financial obligations is that it benefits your credit score. Of course, the program itself is not the sole reason for this. It has a lot to do with the fact that you now have an easier time making payments. It should follow that you will be able to make regular payments on your account.

As this happens, your credit report would reflect the timely payment and help push your score upwards. This will then expose you to numerous advantages of having a high score. You need to remember that simply going into a consolidation program will not automatically increase your score. It is important to put in the work for your score to benefit.

How to go about it?

Enrolling in a debt consolidation program seems to be a great opportunity to set your finances straight. It might be a simple process for some but there is still a few things to consider before going into the program. Here are a few things to look into.

Assess your current finances

Debt consolidation works best if you are still able to meet your current payments. The struggle is trying to make sure that you do not miss out on anything. This is because of the sheer number of details you have to keep in mind. If you are unable to meet your payments because your income is not enough, you might need a different repayment program such as debt settlement.

Understand the program

Getting into a debt consolidation program is just the beginning. It is wonderful in the sense that you get to focus on fewer payment details than before. It drastically lowers down the chances that you would miss a payment or send a payment to another lender. However, you still need to put in a lot of work. You have to make sure that you are able to meet your payments every month.

You need to make arrangements so you do not forget to send out your payment. It would be an excellent idea if you can automate your payments every month. You no longer have to manually send out a payment to your lender every month. Of course, you still have to make sure that you have enough funds to cover that monthly payment. Otherwise, an overdraft can bring in its own set of fees and charges.

Look for a trusted partner

Going through a debt consolidation program can be quite a jarring experience especially if it is your first. You are trying to manage several debt obligations and might already be running behind. This leads to multiple penalties and charges on your account. On top of that, you have to consolidate your debts and you do not have an idea where to start.

This is where working with a trusted company comes in. Working with a debt consolidation company can greatly lower your stress level especially as you pursue this life-changing program. The challenge is looking for a trusted company you can work with. It is not enough that start talking to companies that a search gives you. You need to look at customer reviews, association with trusted organizations, or even with the way they talk about their fees.

Getting into a debt consolidation program can help you manage your payments giving you an easier time handling debt. You just need to remember that it is still just a tool you can use and it requires participation on your end. You need to understand the process, make sure it is right for you and even look for a trusted company to partner with to make the program work.

Everything That You Must Know about Debt Consolidation Loan Before Applying for It

Hardly anyone in today’s world can claim to have fulfilled all of their responsibilities and wishes without needing to borrow money from time to time. Times are hard, and at some point in our lives, we feel the need to take a loan to manage expenses on time efficiently. However, repaying the borrowed sum may sometimes be challenging.

If you have multiple loan repayments to think about, and if the constant payment reminders are stressing you out, you might want to consider availing a consolidation loan.

applying for debt consolidation loanWith proper debt consolidation, you can bid goodbye to the burden of making multiple payments each month. You would only need to pay once and on a monthly basis after consolidating all your loans into one. Restructuring all existing debts and combining them into one may even help to reduce the overall interest rate to some extent. This type of loan can relieve some stress, both financial and psychological, by helping you to put a check on other debts that may keep piling up otherwise.

What is a debt consolidation loan and how does it work?

Debt consolidation typically refers to the process of taking out a loan to pay off multiple others loans, liabilities, consumers debts and so on, which are usually unsecured ones. This new debt may be massive in size, but it also has more favorable payoff terms. It may even come with a low-interest rate or lower monthly payment, and sometimes, it may come with both. This type of loans can be useful in paying off student debts, credit card debts and other forms of financial obligations that one may accumulate over a considerable period.

In theory, debt consolidation is only the process of financing multiple loans, but it is noteworthy that there are specific instruments which creditors can offer the borrowers. Creditors willingly do this due to many reasons. One of the main reasons is that this type of loan significantly increases their chances of collecting from a debtor. It is also one of the main reasons that established and recognized financial organizations like banks and credit unions offer debt consolidation loans to those who face difficulty in managing their payoffs or the size of their outstanding debts. Due to this, debt consolidation companies have also become quite prevalent over time.

Which types of loans can you consolidate with debt consolidation?

There are quite a few types of loans that you may want to consider while consolidating your debt. Out of these, the most common ones are:

  • Home equity loans
  • Credit card balance transfers
  • Personal loans

Home equity loans: This loan is taken out by using the equity in your home as collateral. A fair amount of capital and good credit are the prerequisites for a home equity loan. Even though this financial arrangement puts your home on the line, it does come with typically low-interest rates. Down the path, if the payments become too much to bear, you can go with foreclosure on your home.

Credit card balance transfers: This service enables you to transfer your credit card balances, all of them, into a single credit card. It also comes with a low-interest rate. What is noteworthy here is that low balance transfer rates are mostly promotional rates, and in most cases, they expire after a period of six months. So, you must keep track of time and note when the typical transfer rates will start to apply. To use credit card balance transfer in a debt consolidation loan, you must first have a credit card with a credit limit that is big enough to hold all your credit card debt.

Personal loans: As per the experts at nationaldebtrelief.com, personal loans are a popular choice for debt consolidation. However, you must first be able to get a loan that is large enough to cover all the balances you may have. A personal loan is an unsecured loan. It comes with the condition of fixed payments over a stipulated period. Upon approval, you may use your this credit to consolidate your debts.

What are the main benefits of debt consolidation loan?

Debt consolidation loan, if you qualify for it, can certainly put you in an advantageous position, and that too, financially, socially and psychologically. Take a look at the five main benefits of going with debt consolidation loan:

Single payment: As stated earlier, this type of loan enables you to combine all your debts into one. This way, you only need to make one payment each month. When the loan amount has been paid off, you would have successfully taken care of all your debts and would not have to worry about any consecutive payments.

Lower interest rate: You can save a significant amount of money as this type of loan comes with less interest, especially when compared to the astronomical interest rates on credit card loans. With debt consolidation loan, you can save money not only on monthly payments but also over the lifespan of the credit.

Good credit score: Inconsistent payments compromise your credit score severely. If you manage to get your debts consolidated and stay on top of the monthly payoff, you can work towards rebuilding your credit score steadily.

End to collection calls: Often the failure to make payments on time leads to the creditor handing over the collection duty to agencies. It means that your phones start ringing more often with collection calls. It increases both financial and societal pressure on you. With a debt consolidation loan, you can put an end to such harassments.

Stress reduction: Can you imagine the peace when you know that you do not have to worry about paying off multiple loans, and when you are not disturbed by creditors’ call now and then? All you have to do is arrange for just one payment, on time, each month.

One fact to remember while trying to consolidate your debts with a new loan is that this borrowed sum is not exactly helping you get rid of your debt. You will still have to pay your dues; you will have to plan your finances efficiently, and you will need to be careful about not borrowing more. However, having to pay just one stipulated amount every month might make you feel relaxed. You are just shuffling the debt around to find a more manageable way to pay it off. Practicing discipline and avoiding any new loans until you repay the entire consolidated debt amount would indeed be wise. Try to reduce your expenses so that the need to borrow anew does not arise. In case of difficulty, you can always consult a financial advisor.

Holiday Debt And How To Tackle Them Early On

holiday debtAt the start of the year, there is a big chance that you are thinking about holiday debt you incurred during that frantic celebration week. From gift giving to parties and even last minute travels, the holidays could have set you back in your budget. As a result, your first financial challenge for the year is overcoming that debt.

It might be a little disappointing because you are trying to get ahead at the start of the year. However, the debt you incurred is pulling you down and bringing you in a different direction. Rather than think of strengthening your finances, you are too preoccupied with thinking of ways to pay down your huge debt amount.

Americans added over $1,000 in credit card debt over the holidays according to CNBC. That is a big amount to overcome especially if it is not included in the budget. There are people who might be able to pay that holiday debt in a month or two. However, the reality is that a lot more consumers would have to pay for it for for a longer time.

This is one of the downsides of holiday expenses that went unguarded. As you enjoy the time with family and friends, you might have lost track of your budget. It is possible that you had one to start with but along the way, you just got into the moment and started buying gifts for everyone you know. You could have booked a last minute travel just to be with family and other people close to you.

These and a lot more could have resulted in accruing a lot of debt over the holidays. That being said, here are a few things you can do to get over that financial hump.

Review your holiday debt

Calculating The Household BudgetNow that you are looking at that mountain of debt you got over the holidays, the first thing you need is to review your expenses over the holidays. If the debt you accrued is all on your credit card, you can check your statements as well as the receipts you have for all your purchase. It would be better if you can list them all down so you have a working list.

Next thing you need to do is totally all of them and check if you come to that same total as your debt amount. At this point, it is a smart move to check each and every expense item. What you are looking for are anomalous transactions if any. Also, try to identify impulsive purchases that you made over the course of the holidays. It can help you identify your triggers such as sale promos or even seeing the same item from friends and family. This will help you avoid the same things the next time the holidays come around.

Have a concrete household budget

Once you verify the purchases that led to your holiday debt, the next thing you need to focus on would be your household budget. You need to have an idea what your financial capability is when it comes to paying off debt from the holidays. It is important that you know where you stand financially so you can pay off your debt.

Analyzing your household budget is a pretty straightforward process. You just have to factor in all your sources of income. Next is making a list of all your expenses that you have to attend to month on month. Much like your income, this needs to include all your expenses. From basic needs big-ticket debt payments, you have to include everything.

Start looking for a debt payment strategy

As soon as you have a clear picture of both the debt amount you owe and what you have in your budget, it is time to start thinking about a repayment plan. There are a number of payment strategies you can use to directly address holiday debt. Each of them has their own financial advantages and disadvantages.

One of the payment strategies is the so-called avalanche method where you set your sights on the accounts with the highest interest rate. This is meant to help you save interest payment in the long run. Another strategy is the snowball method where you set your sights on the accounts with the lowest payment amount. This strategy gives you mental wins that encourages you to pay off more debt items in your budget.

One other payment strategy you can look into is debt consolidation. From the name itself, the strategy involves combining your debt payments under one account. For one, it helps you manage your debt payments better. Once you combine your payments, you get to focus on much fewer details and lower the chances of overlooking payment due dates. You can also enjoy the benefit of lowering your monthly payments due to a higher credit score or longer payment period.

Widen the gap between income and expenses

When you start talking about debt payment, your budget plays a big role in determining how you pay it off. One thing you need to remember is that the wider the gap between your income and expense with your income on top, the better off you would be. This would give you more room in your finances and allow you to make extra payments towards your holiday debt.

The most common thing people do is to lower down their expenses. After you have put together your budget, you still need to conduct a thorough review, especially on your expense side. What you need to look for are areas to cut down further. The more expenses you free up, the more you have to double down on debt payments.

Another strategy that a lot of people prefer is looking for ways to increase their income. Traditionally, this used to involve taking on a second job. Something they can do after their day job such as bartending, waiting tables or even pulling double shifts at work. There are those that choose to take on online jobs to earn more money. Others prefer to earn from their hobbies which allows them to earn good money doing something they are passionate about.

Plan for the holidays early on

One of the most effective strategies to address holiday debt is to prepare for it early on. Now that you have an idea how much debt can set you back at the start of the year, you can choose to be proactive for this year. One of the best ways to do that is to make preparations so you do not go through the same mistakes once the holidays come around.

For one, you need to list down all the people that you gave gifts to during the last holiday. This will allow you to assess the overall picture. Next is planning early on what to give them and saving up for that expense. Putting aside a small portion every month is better than stressing out where to get a large amount come the holidays.

Holiday debt carryovers to the new year mostly because you were not able to plan for your expenses early on. It is still at the end of the year but if you plan on it early enough, you can enjoy the holidays without having to lose sleep over your debt payments.

Effective Debt Payment Strategies For The Year

Effective Debt Payment Strategies For The YearAs the new year dawns on us, one of the best ways to manage your finances is to look at effective debt payment strategies. You can simply choose to keep on paying the minimum on your financial obligations and that is fine. At the very least, it will keep you current. However, if you want to have better control over your finances, you need to re-think that strategy.

For one, you would end up paying a considerable sum on interest alone. Minimum payments tend to have interest fees tucked in on the amount. You also have to look at penalties and other related fees if you do not pay amounts in full. Overall, minimum payments can be easy in the pocket but can cost you a lot over time because of interest and fees.

One positive thing you have going is that your payment gets reported in your credit score. That is if you are making on-time payments. Late minimum payments will not only stain your credit report, it can also lead to a lot more penalties and fees than what you are dealing with at present. As a result, you pay more and your score dips.

These are just some of the reasons why you might want to look into effective debt payment strategies to manage your finances. It would be a great start for the year as you use strategies that can get you out of debt faster. The sooner you can do that, the more funds you can put into your future financial needs. That being said, here are a few things to go over to help you identify an effective strategy for debt payment.

Audit your debt obligations

On top of your list should always be an audit of your debt obligations. It is an important first step so you know what you are facing. This step is easy and straightforward because you just list down all your debt payments. From your mortgage loan to car loan, student loans, as well as your credit card payments. You need to be able to list all of them down.

The challenge starts when you are in debt denial with some of your financial obligations. It can be that one credit card that has already been maxed out. It might also be a payday loan you are trying to avoid. As you list down all your debt obligations, you need to be very honest with yourself and be truthful on what you put on the list. Only then will you be able to see the whole picture and look at effective debt payment strategies.

Tackle high-interest debt payments first

One effective strategy to pay off debt is focusing on the accounts with the highest interest rate. Sometimes referred to as the “Avalanche” or “Debt Stacking” method, this helps you save on interest payment down the road. This usually comes out to be your credit cards or other unsecured loans that you have taken out.

Take note that you still need to keep paying all your other debt obligations. You can put in a minimum amount on all while putting a little extra to that one payment with the highest interest rate. Once you have paid off one, you set your sights on the next highest rate and then the next one until you have paid off all your debt obligations.

Prioritize paying off smaller debt amount

When you start talking about effective debt payment strategies, you can also consider the “Snowball” approach which can fast track debt payments. Much like debt stacking, the priority this time are the ones with lowest total amount regardless of interest rate. As you finish one account, you simply add what you were paying for it to the second smallest payment. As you do this, you get to pay off your obligations one after the other.

What this debt payment strategy gives you are small mental wins that you can take to the next one. There is a certain feeling of accomplishment when you pay off any type of debt. It gets you excited to pay off the next one and the one after that. Soon you would have paid everything because you were getting those small wins at the beginning.

Debt consolidation

With the two options above, you still have to keep an eye out for each and every one of your debt accounts. Missing one could lead to bigger debt payments at the end of the month. If you have the ability to meet your payments but you are just struggling with keeping up with the payment schedule, you need to consider consolidating your debt.

This is one of the effective debt payment strategies that a lot of people have been using. As the name suggests, this will entail combining most, if not all of your debt obligations under one account. If you have five different credit cards with various lenders, you are juggling multiple payment details. From the due date to the payment amount and even interest rate.

Once you combine your debts into one account, you will only have to manage a few payment details. As you do that, you lessen the chances of missing a payment. In the process, you reduce the possibility of paying unnecessary fees and penalties. You can also lower your monthly payments either with a higher credit score or even by stretching the payment timeframe longer.

Analyze your debt problem

When you start to look at effective debt payment strategies, you might be tempted to just look at how you can pay it back. After all, that is the end goal. However, you can quickly get back in debt if you do not analyze the problem. Paying off financial obligations could simply be treating the symptom and not addressing the cause.

You might be able to pay off your credit card debt you accrued because of uncontrolled shopping. Value Penguin even shares that balance-carrying households have an average of over $16,000 in card debt. But sooner or later, you will be in debt again if you do not change your shopping ways. As you pay off your debts, you need to make sure that you keep your impulsive buying behavior in check as well. It will turn into an endless cycle of payment if you add debt just as fast as you pay them off.

When you pay off your financial obligations, it will be a big help if you understand why you got into that position in the first place. Is it because of impulsive shopping, an unexpected emergency, or even a medical need? As you identify the reason why, you stand a better chance of protecting your budget. This will help ensure that you keep debt at bay and protect your finances as well.

There are a number of effective debt payment strategies out there to help you address your debt problems. They can give you the chance to save on interest payment or even give you small wins to keep you going. Debt consolidation can also give you the peace of mind where you simply have to focus on one set of payment details every month. If you get to enroll it in automatic debit, you get to enjoy the freedom of checking in every month and be able to set your sights on more important things in life.