Getting out of debt is not an easy task and you don’t want to waste your time on the wrong solution. While debt consolidation is theoretically a logical way to get out of debt, not everyone who chooses it comes out victorious. There are two things that could have caused this. One reason could be that debt consolidation was the wrong choice for their unique financial need. They probably need a bigger reduction on their debt and should have opted for debt settlement. The second reason is they were unable to implement the method correctly and thus was unable to avoid the pitfalls that led to a worse debt situation.
One important qualification of debt consolidation is a steady and stable income. If you do not have a job, this will be a very difficult debt solution to implement. There is no debt reduction here. You will only benefit from a lower monthly contribution because your debts are stretched over a longer payment plan. You will still end up paying for everything that you owe.
Another consideration is the amount of debt that you owe. Make sure you have a clear idea of how much you need to pay off so you can create a more realistic debt payment plan – which is an essential tool in debt consolidation.
You also have to be aware of your current interest rate. One of the goals of this debt relief program is a lower interest rate. It is not always a guarantee but you need to know your current APR so you know your target interest rate. If debt consolidation ends up giving you a higher interest, go and look for another debt solution.
As mentioned, you will be stretching your debts over a longer payment period. Determine how long you want to spend paying off your dues. Usually, debt consolidation takes 3-5 years to complete. If you want a shorter period, then debt settlement or bankruptcy may be the better option. But if the time is just about right, then you need to make sure that you can stick to it.
You should also look at your credit score. This piece of information will help you choose between the different types of debt consolidation. For instance, if you have a bad credit score, you are better off with debt management. In debt consolidation loans, a bad credit score will mean a higher interest rate.
Lastly, check if your disposable income is enough to cover for your debt payments. The disposable income is what’s left of your money after your basic expenses had been removed from your monthly salary. If it is not enough, then you will have a problem with debt consolidation.
Think about your options and your current situation carefully before you really dive into debt consolidation as your way out of debt. Sometimes, desperate people in debt make rash decisions. Keep a level head and do not panic. Also, make sure you understand what got you into the debt situation in the first place. Make sure that debt consolidation can help you address these problems so that you will never land in another debt pit again.