For people dealing with a growing mountain of debt statements and regular collection summons, debt consolidation is a lifesaver. Life is better when you lump all of your owed money into a single payment. When you consolidate your debt, you’re not missing payments due to deadlines, stay on top of multiple creditors or fear steep interest rates.
Before you apply for another low-interest loan in Singapore, get your finances under control first. To become debt-free or to gain the freedom to apply for another loan, consider debt consolidation. Get in touch with a trusted loan consultant or company to steer clear from the following debt consolidation mistakes.
If you find yourself in a debt consolidation blunder, there are ways to fix them, too.
Mistake 1: Not Understanding How You Got Into Debt
Even if you manage to become debt-free, if you don’t learn from your mistakes, you could make the same ones in the future.
Debt consolidation becomes an ineffective, especially if you deal with a monthly payment and still spend excessively. If you don’t consider how you ended up in debt, you may never break the bad habits that got you there in the first place.
When you consolidate debt, acknowledge the severity of the situation, find out where you went wrong and fix old habits.
How to fix this: an efficient money management system can spare you from debt. Debt consolidation cleans up your finances, as well as gives you time to reflect on your money management habits. To establish a better system, consider the following:
- Identify your triggers and vulnerabilities. Do you impulsively shop or order food online during your workday?
- Comb through bills, statements and other expenses. Use these to create a detailed breakdown of your spending. This will help you pinpoint the culprit behind your debt. Also, practice tracking your expenses so you’ll see where your money goes.
- Create a budget. Once you’ve noticed the negative patterns, establish a budget and stick to it. A budget encourages you to steer clear of spending pitfalls that got you into debt in the first place.
Mistake 2: Not Considering All of Your Consolidation Options
There’s no such thing as a one-size-fits-all fit for debt consolidation plans. There are many consolidation options to choose from. These choices can range from putting your debts onto a line of credit, moving all of your credit card debt into a single card, or applying for a bank loan. If you don’t study your options, you may end up with a plan that doesn’t suit your financial needs.
How to fix this: before you decide on a debt consolidation plan, consult with credit counselors first for guidance. A credit counselor can help you put together an achievable budget to ensure your spending stays within your income. They can also help you explore your solutions and options to get out of debt, as well as give you a plan to deal with your debt within a reasonable period.
Another fix is to weigh the pros and cons of your debt consolidation options. For example, balance transfers could come with low-interest rates in the beginning. The fine print, however, can reveal difficult conditions, pricey upfront fees and unreasonable interest rates. In most cases, you have to pay off your consolidated debt before the promotional period ends if you want to take advantage of the low-interest rates.
Always do your homework before you settle on a debt consolidation plan. Consider the long-term effects of a potential plan since some plans can leave you with bad credit.
Mistake 3: Not Having a Specific Pay-Off Date for Your Debt Consolidation
Depending on the debt consolidation plan you choose, you can make minimum payments monthly. To make sure you’re paying them off, follow the set deadlines. Work with your creditors to set a doable deadline; most creditors welcome payments within three to five years. If your creditors approve you for a debt consolidation loan, you are one step closer to zero balance with each payment you make.
How to maintain good credit: manage your budget in a way that allows you to diligently pay for your debt so you can balance your payments. If a payment deadline is within a week, avoid making unnecessary purchases — even if you think they’re important. For example, you can always buy a laptop with OLED display next time. Also, determine the amount of money you can realistically repay monthly. Simplify your payments by automating your payment through online banking.
Debt consolidation aims to simplify your debt payments. Choosing the right strategy can spare you from making costly mistakes. Partner with your credit counselor to benefit from a smooth debt consolidation loan plan in Singapore.