Consolidating debt tips
“Our research finds that people often get this decision wrong (from a strictly financial perspective), focusing on paying off small-balance loans, rather than high-interest loans.” The one constant with any true debt consolidation program is the availability of additional credit –typically the ability to get a new loan or line of credit.
This is an extremely important differential because true debt consolidation may not be feasible if your debt problems have already damaged your credit standing or your debt-to-income ratio is so high that no one wants to approve you for additional credit.
"But consolidation is just a temporary bandage for a bigger problem.""It's a tool and it's not step one because nothing has changed," agrees Carol Lewis, a certified financial planner who specializes in helping consumers get out of debt.
"By itself, debt consolidation won't do anything for you."Tread carefully, the experts say, or you could end up in more financial trouble.
You can also reach out to your individual creditors to see if they will agree to lower your payments.
Some creditors might be willing to accept lower minimum monthly payments or change your monthly due date because they would rather get paid less on a regular basis – than not get paid at all.
The process also provides the simplicity of a single payment for all of your debts as well as the reassurance of having a line of sight to debt freedom.
“Debt consolidation can also eliminate difficult decisions about which debts to prioritize,” says Scott Rick, assistant professor of marketing at the University of Michigan.
If you are thinking about debt consolidation, you might want to first consult a non-profit credit counselor.According to data released by the Federal Reserve this February, Americans' revolving, non-mortgage credit increased in December 2014 to .3 trillion -- while non-revolving credit (such as student and auto loans) rose to .42 trillion, as reported by USA Today.Whether you owe student loans or carry a balance on your credit cards, the impact of debt can be felt in many areas of your life.Many people become overwhelmed by their debts, but they don't have to be.One way to help alleviate some of the strain is to consolidate debt from multiple sources.