5 Things to Consider Before Debt Consolidation
January 23, 2023
“What do you think of debt consolidation?” I've had this question from multiple people in the last month. The fresh start we all get with a new year has people considering their money afresh and I’m a fan.
What I’m not a fan of is the effect of living under a pile of debt. It’s no fun to be in a position where you find yourself hoping something big like this will solve your financial woes.
What is debt consolidation? In short, it's lumping all your current debt into one big debt to hopefully get better terms (i.e. a lower interest rate). I'm not a debt counselor and have no advice for whether or not you should do it, but I think you'll find the following 5 prompts helpful as you weigh your options.
Here is what I would share with anyone asking this question:
1. You are not alone.
First, remember that you are not alone in this financial struggle or in having financial struggles. And you would not be the first to dig out from under this burden. The human story is one of overcoming and repairing.
And in recent times, as debt has become more accessible, thousands upon thousands have found their way out to experience abundance and prosperity. There is always hope! Debt and financial stress won't always be your story and your life, or at least it doesn't have to be.
2. Evaluate your commitment.
Ask yourself if you are really serious about getting out of debt. If you received $5000 today in the mail from Great-aunt Nessie, would you actually use it to reduce debt?
If not, why? What would you do with it instead? This is what you want more than paying off debt. It is way better to identify that you still have priorities ahead of debt payment before taking a big step like debt consolidation.
3. Hold a healthy self-assessment.
Look at what brought you to this point, not from a place of judgment or self-criticism but from curiosity. Those same things will continue with you in the future until you look at them honestly.
Have a really honest conversation with yourself and, if you share a financial life with someone else, your significant other. Get your full situation out on the table, including an honest look at why you spend like you do.
4. Consider all your options.
If you're considering debt consolidation but have something big you can sell or downgrade, at least consider it. Could you focus on stopping the debt accumulation cycle? Then get serious about paying off one debt and focus on that?
It can be easy to latch on to one thing that sounds like it might help especially if it sounds like the easy button, but there really is no easy button here.
5. Get organized.
Accept how much life really costs and make an honest budget for it. A system is key, especially one that works.
You know it works when you get results you like. A budget that doesn’t work is just a fruitless exercise in trying to not spend everything you have. Cutting back in a disorganized system is meaningless because the savings just blend in to the disorganization instead of working for you.
This step is part of realistically looking at how debt consolidation is actually going to work for you before you commit to it. Make sure you understand it and aren't just hoping you'll be okay with what it means for your life.
In short, before you go down the road of debt consolidation—and for some of you it may be just the right thing to do—get organized first, do as much research as possible on your options, and stay hopeful.
And you can certainly be hopeful since the future is bright, especially when you get in the driver's seat, buckle up and get serious about improving your circumstances.