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23
Jul

Common Debt Consolidation Mistakes To Look Out For

If you are in debt, it is important to find out the best way to get out of the hole. There are different options available and they include but are not limited to negotiating with your creditors. When all else fails, consider debt consolidation, which is basically turning all your debt into a single loan. This can make your debt more manageable and it can help you to avoid bankruptcy. When you decide to choose this option, make sure that you get the loan from a reputable source. You should avoid some common debt consolidation mistakes when you decide to choose this option.

1.    Avoid reloading credit cards

Under the right conditions, getting a debt consolidation loan can be great as it can simplify your debt payment. You can avoid the hassle of paying multiple credit cards debts and you can even benefit from better interest rate. That notwithstanding, the debt consolidation loan is not a declaration that you have a clean slate to go back to your old habits. The fact is that the amount that you owe remains and it is simply in a restructured form. You should not end up reloading the cards as you could end up in a worse debt situation. If you must have a credit card for emergencies, make sure it has a low limit and interest.

2.    Failing to address the real problem

It is important to get to the real issue that led to the debt problem. Getting a debt consolidation loan should not mean that you are free and clear. Until you solve the underlying issues, you will end up merely postponing the problem. You might relieve some of the pressure but this does not mean that you have solved the problem. For long-term success, you have to consider a lifestyle change and come up with a budget and new spending habits that will make the debt consolidation plan work. It helps to talk to a financial adviser who can help you to make responsible choices.

3.    Failing to consider the hidden costs

Most debt consolidation loans come with hidden costs and fees and it is important to read the fine print before you sign the documents. The costs may not be too high depending on your credit score and your particular situation but you need to understand the payment plan. Find out where your money is going and understand what you will pay as the initial processing fee, fees for checks sent to creditors, monthly service fee, or even penalties for early payment. Look at the incidentals before you decide to take the deal as this can determine if you are making the best financial decision.

4.    Choosing the wrong lending company

Most people make hasty or desperate decisions when they find themselves in financial difficulties. This often means they end up dealing with the wrong company. Make sure that you deal with a reputable lender so that you can avoid being exploited. Go to great lengths to ensure that you deal with a legitimate company that is duly registered to offer the services. It helps to ask for references and to carry out research so that you can find the best company for your situation. You can avoid high fees and problems with your creditors by dealing with the right company.

If you find yourself in a situation where you might need a debt-consolidated loan at some point, you should try to rectify the situation before it is too late. Avoid carefree consolidation and realize that talking to your creditors and curbing your spending habits can help you to avoid this route. If, however, it is the only option that is viable in your case, make sure that you avoid the common mistakes.

 

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