Need Help With Debt Consolidation? Avoid These 6 Common Mistakes

Debt consolidation is a very useful tool to help reduce your debt burden. In fact, it’s one of the most commonly sought after pieces of financial advice for people to become debt-free. When done right, debt consolidation can help lower your monthly payments in addition to making them more manageable with just one creditor. It can also allow you to make room in your monthly budget for other expenses or improve your financial position when you’re aiming for a major purchase.

However, given its popularity, it’s sometimes thought of as a silver bullet. It may also be confused with debt settlement, which is an entirely different concept. As any financial counselor will advise you, debt consolidation only works when you use it in the right context and you have a tailored plan that works for you. Here are some common mistakes to avoid when you go about consolidating your debt.

1. Not Working on Your Finances First

Before you send out inquiries for consolidation options, take a minute to assess the state of your finances. Consider whether there are actions you can take to ease your finances. Are there certain expenses you can cut out or purchases you can postpone? This can save you some money that you can reallocate towards debt payments, helping you reduce the amount you borrow for debt consolidation.

Also, smart financial management is good debt advice because it can help improve your credit score. By paying off existing loans quicker, you reduce your credit utilization ratio and may qualify for better terms on your debt consolidation loan.

2. Taking on a Higher Interest Rate

The point of a debt consolidation loan or a flexible personal loan is that it’s typically offered at cheaper rates. For example, the average credit card annual percentage rate (APR) was 22.8% in 2023, while the average interest rate for personal loans was a little over 12%.

When you go for debt consolidation, it’s basic financial advice to choose a plan with a significantly lower interest rate than the average rate of your card or loan balances. This lowers your monthly interest payments and can potentially save you thousands of dollars a year.

3. Opting for the Longest Term Available

Debt consolidation is a great help when you have long-term, high-interest debts on your accounts. It can help you pay off your loans quicker and improve your credit report that much faster.

However, a mistake people sometimes make when they choose a debt consolidation plan is to opt for the longest repayment term available to them. While this can lower your monthly payments, it also means you’ll be paying more in interest over the life of that loan. As financial debt advice goes, it’s a no-brainer to balance the goal of a healthy credit report versus not overextending your monthly budget.

4. Not Exploring All Your Options

Debt consolidation is a popular tool, and there are a number of providers out there offering it. Just as with any other product or service you’re buying, you’ll want to explore as many offers as possible from different lenders before you make a choice. 

Here’s a good bit of financial debt advice: if your run-of-the-mill banks aren’t able to offer you the best possible terms, don’t hesitate to explore some reputed online lenders. With Lending Tower, for instance, you have access to some of the most competitive interest rates, starting as low as 5.99%. You’re also presented with a range of loan options tailored to your needs so that you can select the best fit for your situation.

5. Ignoring the Fine Print

Regardless of who your lender or financial partner is, it’s good debt advice to thoroughly peruse your loan contract before signing it. Sometimes, you may end up being saddled with hidden fees and penalties that end up making debt reduction harder for you.

You should also look out for fraudulent lenders. Outright loan offers, as opposed to pre-approval for loans, are scams. The same goes for application fees; legit lenders will never ask you to pay to apply for a loan.

6. Missing Payments or Creating New Debt

One of the best bits of financial advice you can receive for debt consolidation — or any other loan, for that matter — is to never miss your payments. Missing a payment by 30 days or more can have serious consequences, including affecting your credit score and your relationship with that lender. It can also trigger lender fees, adding to your expenses.

Prioritize your debt commitments once you’ve made your essential purchases every month. Consider setting up autopay, at least for the minimum amount, to avoid this mistake.

Trust in a Proven Lending Partner to Reduce Your Debt

Lending Tower makes it fast and easy to get you funded online. Rated A+ on the Better Business Bureau, we’ve helped thousands of customers across the nation achieve financial independence. Our personal and consolidation loan options are tailored to your specific needs and you’re guaranteed 100% transparency at every stage. Check your potential interest rate online before you apply or speak to one of our loan advisors for more financial advice or help with debt consolidation.