Do you need help managing your debt payments?
Debt consolidation may provide an effective solution by consolidating them into one loan. That said, here are five of the most common mistakes people make when consolidating debts – and how to do it right according to Canadian law and regulations.
Mistake #1: Fail to Understand the Terms and Conditions
Make sure you comprehend the terms of any new loan. The includes the interest rate, fees and repayment terms, penalties for late or missed payments and potential “hidden” costs. Above all, make sure your monthly payments fit comfortably within your budget.
Mistake #2: Only Look at Monthly Payment
Lower monthly payments may seem attractive but could cost more over time due to longer repayment terms and their associated interest payments. When consolidating debts, ensure you consider the total cost of the loan and its interest rate.
Mistake #3: Consolidate the Wrong Debts
Consolidating might not be your best option. Some debts, like student loans or mortgages, may have lower interest rates and more favourable repayment terms. Consolidating those debts with higher interest rates could cost you more money in the long run.
Mistake #4: Ignore Debt Consultants, Credit Counseling and Debt Management Programs
When in doubt, check with a debt consultant like 4 Pillars or with credit counselling and/or debt management programs for professional guidance and support.
Mistake #5: Fall Back into Debt
Address your debt’s root cause(s) to avoid repeating the same mistakes. Create a budget, stick to it, and avoid overspending or taking on new debt.
How to Do It Right
Debt consolidation comes down to comparing the interest rates and repayment terms offered by lenders, then ensuring you fully understand what you’re getting into. And you need to pinpoint what caused you to fall behind, so it’s time to take a hard look at your current budget. However, you’re also not expected to know all your options. That’s why seeking the help of a debt relief consultant is always a wise decision, as they’ll help you regain control of your finances.
