Mistakes to Watch Out for When Consolidating Credit Card Debt

When you are stuck in credit card debt and struggling to manage multiple payments each month, consolidating your debts into a single loan can be a great way to manage your debts. Having to plan for a single payment each month takes stress out of the process, makes debt repayment easier, faster, and less expensive, and can help you build credit.

On the flip side, mismanaging a debt consolidation loan can further trap you in debt, harming your finances and credit. This can be as simple as making a mistake when consolidating credit card debt or neglecting your new repayment.

So, what are some common credit card debt consolidation mistakes to avoid that can help you leverage debt consolidation loans to improve your financial position?

Not Having a Plan for Paying Off Your Debt

A debt consolidation loan is a great tool to combine multiple expensive credit card payments into a single predictable and manageable payment. This is a useful strategy when you are trying to pay off your credit card debt quickly and not spend money on interest by making minimum payments. But if you fail to budget for this single payment, consolidating your credit card debts will not work. So, be sure to craft a budget that realistically accounts for loan repayment before opting for a debt consolidation loan.

Read More: How to Pay off Credit Card Debt

Not Considering All Available Options

A credit card debt consolidation loan is just one of the options to effectively pay off your credit card debt. There are many alternatives to consolidating credit card debt that can help you be debt-free and build credit. Some alternatives worth considering are:

Create a Payoff Plan

Creating a payoff plan with a debt snowball or debt avalanche strategy can help you prioritize the debt you must pay off first. Budgeting to pay off one debt at a time – and repeating the process for every debt – can help you stay motivated and save money when it comes to interest payments.

Consider a Balance Transfer Card

If you have a relatively good credit score, a balance transfer card can also be a great tool to efficiently pay off your debts while saving interest costs. You will need to pay fees to transfer your balance but be mindful that you may not qualify for a high enough limit to cover all your debt obligations.

Consult a Credit Counselor

Working with a credit counselor can help you strategize your financial decisions so that you can budget, save, and manage your debts better.

Not Looking at Your Financial Situation

Not understanding or ignoring your financial situation is one of the biggest mistakes you can make when trying to pay off your debts or improve your finances. Piling debt can hamper your decision-making, and any ideas that can help relieve some of this stress can seem appealing. But, blindly jumping to a decision without assessing and analyzing your financial position can be detrimental to your financial health. Your priority should be improving your credit score, so analyze your position before you opt for credit card debt consolidation.

Not Going for Short Loan Tenure

Opting for long loan tenure to reduce your monthly payments may be tempting. But looking at the bigger picture, you will end up paying much more in interest costs before you clear your debt. Check the various options your lender may offer and – based on your income – opt for the shortest possible tenure to save interest costs and become debt-free quicker.

Only Paying the Minimum

Only paying the minimum dues on a credit card is a tempting option to keep your credit intact and continue to use your credit card without having to pay your dues in their entirety. Although your credit will indeed remain intact if you pay the minimum, you will incur additional interest costs on your outstanding dues. This will only trap you further in debt as interest costs continue to balloon, leaving you unable to pay off your debt. Try crafting your budget so that you can make larger payments or work with your lender to schedule more frequent payments. Just be mindful of any prepayment penalties your lender may charge.

Missing Your Payments

Missing a payment – 30 days or more – carries significant consequences. Not only will your credit score drop, but you may also attract lender fees in addition to interest costs. The best strategy to avoid this is setting up automatic payments for the minimum dues and then transferring any extras when you can (per the above point). This can not only help you avoid missing payments, but a lender may also offer you incentives or discounts for setting up regular payments.

Conclusion

A debt consolidation loan is one of the greatest tools to effectively manage and pay off multiple credit card debts while trying to improve your credit score. Your best bet to become debt-free would be to look at all the available options and craft a solid plan to pay off your debt. Mistakes like missing your payments, paying only the minimum dues, or opting for a longer tenure are easy to avoid but can have devastating implications for your financial health. So, be sure to critically analyze your financial position and find the best possible option to pay off your debt quickly.

Still confused if credit card debt consolidation is right for you? Start your free evaluation today to find the solution best suited to your unique financial problems. Working with Epic Loans‘ Debt Consolidation Specialists can help you come up with the best credit card debt consolidation plan to make sure you can pay off your debts easily and quickly.

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