Debt consolidation is a powerful financial tool that can help individuals and businesses alike. It can do everything from simplifying finances to lowering monthly payments and interest rates. However, like any financial move, there are mistakes you should avoid. Keep reading to learn about those errors.

Not Curing the Problem

Debt consolidation only works if it’s backed by a sound plan to pay down the debt. After all, people who consolidate debt and slip back into bad habits like overspending won’t actually dig out of their debt anytime soon. It’s important to go in with a plan for paying down debt, then stay disciplined enough to stick to that plan.

Not Cutting Interest

While debt consolidation does often simplify monthly payment schedules, an arguably even bigger benefit is that it gives you the opportunity to lower the interest rate on what you owe. Before you jump into a debt-consolidation loan, carefully consider its interest rate; ideally, it will be lower than that of your current debts.

Lowering Payments Only by Spreading Them Out

Some debt-consolidation options may lower monthly payments merely by spreading them out over a longer time horizon. If that’s the case, you may not save any money, all things considered. If a longer repayment period is your only option for getting monthly payments down to a manageable level, then you may still go this route. But be sure to run some calculations to understand if you’ll end up paying more in interest overall.

Not Exploring Other Options

Debt consolidation is one of many methods for making debt easier to tackle. It’s important to explore options; for instance, alternative lenders may have solutions you’re unaware of. Debt consolidation is frequently still the best move, but you owe it to yourself to consider multiple paths.

First Class Lending has a range of financial solutions that can help, whether you’re consolidating debt or pursuing a different financial goal. Talk to us any time to learn more.