It is an unfortunate truth that it is all too easy in modern life to suddenly find yourself struggling with a large amount of debt.
For some people, falling into debt can be as simple as overspending on special events like Christmas or even paying just a little too much towards that much-needed vacation.
For others, it may emerge from the need to make unexpected emergency payments, such as when a car breaks down or an appliance in the home needs repairing.
Furthermore, with many of us often having more than one credit card on the go at any single time, juggling repayments and keeping on top of money matters can quickly become pretty complicated.
Using loans to pay off credit card debt is a viable option if you want to consolidate what you owe into a single monthly payment, but there are a range of issues you should bear in mind if you choose to take the step. Here, we take a look at some common mistakes that people make when it comes to credit card consolidation, as well as a few of the ways you can avoid them.
Failing to do research
It is important to consider all of the credit card consolidation options available to you from the outset, rather than simply opting for the first reasonable product that you discover. Having a proper overview of what is out there will mean you can make an informed decision on what is ultimately right for you.
Furthermore, if a consolidation product appeals, you should check to see if there are any hidden charges like fees linked to it. In addition, if you’re in a complicated and fairly serious situation don’t be afraid to seek expert advice too.
Using credit cards again
One of the most obvious consequences of consolidating credit card debt is that you clear the debt on your cards. However, while it may be tempting, you should resist the urge to use the cards again during this process.
After all, the whole point of consolidation is to reduce your debt, so the last thing you should look to do is create more problems for yourself. If you’re in a position to do so, you should perhaps consider closing some card accounts.
Opting for secured debt
There are many options out there for those looking to refinance credit card debt, but you should think very carefully before opting for anything which looks like a secured loan.
While card debt is unsecured, it is dangerous to change it into a loan which is secured against collateral like a property. If you do so and you begin to have issues with making repayments, then you may run the risk of losing your home.
Consolidating for no benefit
While consolidation means you condense all of your debts into a simple, single monthly payment, the other key benefit is that you could be able to lower the level of interest you are paying on your debt.
However, you should examine all of your existing debts carefully to ensuring consolidation is the right option for you.
For example, if you’re already paying low rates on debt and cannot get a better deal through consolidation, you might want to think carefully about taking the step.
As we have touched upon, one of the key benefits of consolidating credit card debt is that you are able to simplify your finances and pay off what you owe through single monthly repayments. However, you may only get into more difficulty if you fail to keep up with those payments.
With that in mind, keep on top of the issue and also ensure you know what you can afford from the outset. This should mean you are able to pay when necessary and ultimately see your debts reduce.
Not learning lessons
Once you have reached the point where consolidated debt has been paid off and the future is looking a little bit brighter, it is important to not slide back into old habits and start using credit cards like you did before.
You should consider your lifestyle and whether there is anything you can adjust to prevent your debt problems from emerging once again. This might include properly budgeting in terms of your outgoings and also ensuring you have some cash set aside in case of unforeseen issues like car repairs or the need to replace household goods.
Consolidating credit card debt can be a hugely beneficial step for many people but, as the points made above emphasize, there are a number of pitfalls to avoid when considering the move.
We hope this advice proves useful as you look to get your finances back on track in the weeks and months ahead.