There’s no denying that, for people from Las Vegas and beyond, debt can be a very real, seemingly insurmountable problem. At the same time, debt is unavoidable for the great majority of individuals in our country. Whether you’re taking out a loan to buy a house, pay for your education, or just signing up for a credit card to give yourself an extra bit of spending money, that debt can add up fast.
And when debt adds up fast, it can get out of control very, very quickly. And that’s when debt consolidation may be a good idea.
How do I know my debt is out of control?
Honestly, if you’re on the internet trying to figure out the answer to that question, it’s a pretty good sign that you’re in a little bit of trouble with your debt.
There are also plenty of other signs that you’re in over your head when it comes to your debt.
1. You hate talking about your debt
Sure, nobody likes to talk about their debt (unless they’re the annoying people at the party humblebragging about how they buckled down and paid off the entirety of their student loans in a year-and-a-half). But if you avoid conversations about your debt like the plague, then you might be in debt denial.
Those conversations might be with your creditors. Do you screen unknown numbers because you’re afraid those calls are coming from angry collectors? Is even looking directly at your bills unbearable? Then you might be in trouble.
Your problem might be even worse if you can’t broach the subject with your closest friends, your partner, or your family. When you’re struggling with a huge amount of growing debt, these people are going to be affected by how you react. If you can’t talk to them, then you could have a serious problem.
On top of that, if you’re intent on ignoring your debt, then it’s only going to grow due to interest, late payment penalties, and other factors.
2. You have absolutely no idea when you’ll actually pay off your debt
A great way to tell if someone is managing their debt in a responsible and sustainable manner is to ask them when they’ll finally pay it all off.
If they can give you a hard date, or even just a specific timeframe, then it’s a good bet that they’re in control of their finances and have a realistic plan for getting out of debt in their lifetimes.
If they just kind of roll their eyes, sigh and say “Someday, hopefully,” then they’re probably struggling to even wrap their minds around how much money they’re expected to one day pay back to their various creditors.
Does that sound like you? If it does, you should be worried.
Why does knowing when you’ll pay off your debt even matter in the grand scheme of things? Because when you have a specific deadline for meeting your debt repayment goals, you’re much more likely to get your life together and hit your target. You’ll be more inclined to spend your time and resources figuring out how to get out of debt rather than treating it like a force of nature that you have no control over. You’ll also be less likely to spend more and get yourself deeper into debt because you’ll be hyper-aware that those kinds of habits are only increasing the space between you and your debt relief goals. In general, for folks in Las Vegas and beyond, having concrete goals helps you to achieve more, and paying off your debt is no different.
3. You’ve tried balance transfers and you can’t make them work
For people who are struggling with growing amounts of high-interest credit card debt, the idea of a “balance transfer” can seem like a real no-brainer.
Here’s how it works: you find a new credit card with a 0% introductory APR. There are plenty of them out there catering to folks sitting on a whole lot of debt. The idea is that you can use your new credit card to pay off your old credit card while also staving off the compounding of interest for a little while (at least, until the 0% APR deal wears off).
That’s not a bad idea for some people, but it might be a bad idea for you. Especially if you’ve done it before and didn’t really make much of a dent in your debt.
The big risk here is that some folks who are used to living on credit can’t adjust to not living on credit. They do the balance transfer and benefit from the lack of interest, but they continue to spend and refuse to devote enough of their financial resources to actually paying down their balance.
Once the 0% introductory APR offers expires, they’ve undone most of the progress they’ve made and they’re back to square one, racking up debt like they always have.
So if you’ve done more than one balance transfer and it didn’t really change things for you, there’s likely a bigger problem at the foundation of your debt issues.
4. You’re chipping away at your savings and not making progress
Savings accounts are a wonderful thing. By putting money into a savings account, you’re building up your financial health and your stability. Many people fall into debt because an emergency struck and they had to use credit to bail themselves out. With a strong savings account, you won’t have to do that. The emergency will be dealt with instead of hanging around as a minimum monthly payment.
That’s the right way to use savings. The wrong way is to use savings as a bludgeon against your growing debt problem.
If you’ve been “borrowing” from your savings in order to pay off your credit cards, then you’re hurting yourself twice. Not only are you using money you should be sitting on to pay off interest but you’re also making yourself more likely to plunge into debt if disaster strikes.
You’d be much better off finding a way to put money back into your savings every month by cutting back elsewhere in your spending habits. That way, you’ll protect yourself from future debt once you pay off your existing debts.
5. Your debt makes you miserable
We talk a lot about the financial toll of debt for obvious reasons – at its core, debt is, of course, a financial problem.
The lived experience of debt, though, is equally distressing. When your debt is looming over you like a dark cloud, it’s really difficult to think rationally about how to confront it. When you find yourself constantly thinking and stressing about your growing debt problem, losing sleep and seeking escape from your worries, then it’s extraordinarily hard to sit down and make a plan for actually getting out of debt.
But that negative impact on your life should be the impetus for getting out of debt and taking control of your life back. Every little thing that you learn about your debt will make you feel better because you’ll begin to realize that your debt is a concrete problem with rules and limitations, not an inescapable burden. If your debt is making you miserable, then you shouldn’t seek to avoid it – you should confront it head on.
How do I know if I need debt consolidation?
If your debt starts to spiral out of control and you’re not sure how you’ll keep up with monthly payments and pay it off, you might feel as if you don’t have any attractive options for getting out from under the shadow of your debt.
Luckily, you couldn’t be further from the truth. There are plenty of options for figuring out how to pay off your debt. From making a simple budget and sticking to it to enlisting the help of a debt professional, all you have to do is make the choice to deal with your debt head-on and you’ll be greeted with plenty of ways to do it.
In particular, we want to talk about a certain way of dealing with your debt called “debt consolidation.”
What exactly is debt consolidation?
While there are many different forms of debt consolidation, they all share a single trait: they consolidate all of your debt into a single monthly payment instead of several smaller, different payments.
If you live in Las Vegas and you’re struggling with debt, especially with debt from a wide variety of different creditors, then you can appreciate just how helpful debt consolidation can be.
For one thing, consolidation just makes debt more convenient to deal with. No more setting reminders on your phone or trying to balance a spreadsheet to keep track of your multiple minimum monthly payments. No more dealing with multiple late fees as you try to make those multiple payments work with your paycheck schedule. It’s one payment and done.
There are added bonuses too. When you pull all of your debt into a single monthly payment, you’re only dealing with the interest from that single monthly payment. In a whole lot of cases, that can lead to less money spent on your debt payments per month because you’re compounding less interest than you would otherwise.
In the long term, then, you’ll end up paying less out-of-pocket for your debt as well. There’s no guarantee that this will happen to you, but it’s not uncommon for people who participate in reputable, truly helpful debt consolidation programs.
When is debt consolidation a good idea?
It takes a special kind of person to make debt consolidation work. You need to be in the right situation and have the right attitude to make it work. Here are a few signs that you’re the right kind of person for debt consolidation.
1. You’re drowning in a multitude of monthly payments
One of the best things about debt consolidation is that it takes all of your monthly payments and reduces them down to a single, manageable payment that you can keep much easier track of.
For that reason, it’s a very attractive option for individuals who are dealing with debt coming from a wide variety of different sources. If you ran up several different credit cards, for instance, then it makes perfect sense for you to want to consolidate them in one payment that falls on a particular day of the month rather than have to keep track of all those different payments all the time.
Not only could this save you money in the long run through reduced interest rates, but it also helps to reduce the stress of dealing with a ballooning amount of debt from a variety of sources, which in turn helps you to rationally face your debt and keep up with a responsible plan for paying it off.
2. Your interest rates are killer
Without interest, debt would just be moving money around from one account to another. Interest is called interest for a reason – it’s why creditors are interested in loaning out money to individuals in the first place. When you pay back your debt, they make their profit off of the interest you pay back to them.
Of course, creditors need to compete with each other, and one of the areas in which they compete with each other for your business is interest. That’s why so many similar sources of credit have different interest rates.
All of that is to say that you might have a lot of debt that varies in interest rates. If so, then debt consolidation can help you to bring the total amount of interest that you’re paying down – even if the interest you pay on your consolidation is higher than some of your accounts.
Imagine you have accounts with 5%, 10%, and 20% interest rates. The interest on the 5% account feels negligible compared to the interest on the 20% account, but by the end of the month, they’re all coming out of your pocket.
Then say someone offers you a debt consolidation package with 12% interest. It’s higher than two of your accounts. Do you take it?
That depends on your particular situation. But in this case, by bringing down the interest you’re paying on the 20% interest account, you could actually end up saving money in the end.
So if you’re dealing with a variety of interest rates, some of them high, then debt consolidation might be a good idea for you.
3. You’re ready to change your spending habits and become more financially responsible
Bar none, this is the biggest and most important quality a person who is considering debt consolidation.
Debt consolidation only works if you are willing to change. It’s not a magic ticket out of debt. It’s just a mechanism for making dealing with your debt easier.
That mechanism is designed to give you breathing room so that you can deal with your debt more actively and responsibly. Without better spending habits, it’s not going to go away.
In short, if you aren’t ready to change yourself, then debt consolidation won’t change your life.