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5 Debt Consolidation Traps To Avoid
Most individuals who are trapped by debts and overwhelming bills have an oasis of hope in the face of debt consolidation. Debt consolidation involves the use of a single consolidation loan to pay off other existing loans. So instead of having to keep track of and pay for multiple debts by the end of each month, you will only have to worry about one debt and one repayment.
Through a debt consolidation program, you have the advantage of enjoying lower interest rates. Despite the relief which debt consolidation offers to clients, there are traps along with its benefits that consumers should be wary off.
Consolidating the wrong debt
For you to reap the benefits of debt consolidation, you ought to be consolidating the right types of debts. It will be a poor financial decision if you were to consolidate loans that have low-interest rates such as auto loans, as such loans will be better if you pay them on your own.
Loans such as credit card debts would generally be suitable for debt consolidation due to their high-interest rates. Such loans would be difficult to repay on your own without applying for other financial measures to help you.
Choosing the wrong company
Some debt consolidation companies are associated with notorious and shady practices. Some of these companies are known to charge their clients outrageous fees. Some schemes charge high monthly fees while others take unnecessarily long periods of time to resolve the client’s debt issues. These are common exploits geared towards accumulating money for the consolidating company.
Therefore, you should be on the lookout for companies that do not provide you with a clear debt consolidation plan. Also, with the help of a debt consolidation calculator, you will also get a rough idea of the repayment period and interest rates charged. This makes it easy for you to expose rogue consolidation companies.
Many people consolidate their debts into a single consolidation loan to save on interest rates. By consolidating debts, you are combining your current debts and you’re left with only one consolidation loan that has a significantly lower interest rate. By understanding this logic, you should be on the lookout for traps that charge high-interest rates as they are out to put the consumer at a disadvantage.
You use your cards before balance transfer maturity
Upon consolidating your credit card debt into one credit card consolidation loan with lower interest rate. It is imperative to keep in mind that a balance transfer does not take effect immediately. It takes a time to process, therefore you are expected to pay the minimum payments on your cards.
Online debt consolidation
Should you wish to consolidate your debts, it is imperative that you become more prudent when it comes to consolidating online debts. Many online debt consolidation programs are associated with scams. Some are not even in the debt consolidation business.