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2 Things to Avoid When Opting for Debt Consolidation

Debt consolidation is like a message from the Almighty when you are trying to remember due dates. When your line of credit, credit cards, and other loans come together to become a lump sum and you have to pay a minimum amount, it is indeed good news. However, before taking a leap into the world of debt consolidation, don’t you think it is better to know what not to do while dealing with your finances?

You do not bother to research your options before consolidation

A single method does not define debt consolidation. You may transfer debt onto a present or new line of credit, commit to an unsecured loan or even bring your debt on a balance transfer credit card.

Other options are debt management and debt settlement. In case of a debt management, you need to enter into an agreement with a non-profit credit counseling firm and your creditors. Your consolidator will see to it that you are relieved from the tension by either winning a longer repayment span (3 to 5 years) or consolidating the entire amount of your loans at a reduced rate of interest. Debt settlement, on the other hand, involves the payment of a huge amount of money to settle a debt. But, this amount is lower than the money you owe.

Certain consolidation plans are attached with huge upfront costs, right from origination fees to transfer fees. For instance, a credit card balance transfer will most probably cost 3% to 5% of the amount transferred to the new card. In the event that the interest rate is low for the promotional period, it may rise suddenly.

The way out –Research on interest rates and have your debts before you, then call your creditors to check, if they are ready for a lower rate. Crunching a few numbers can end up being better than the idea of consolidation. Some creditors may agree to work with you, if your financial crisis is due to an accident or a job loss. However, if you decide to consolidate your loans, then learn about its implications properly to make sure that there is no nasty surprise lurking for you in future. Read debt consolidation reviews and discover the premium consolidation plan.

Getting to the root of the problem is not your priority

Debt consolidation is a favorite among those who do not know how to manage the after-effects of a massive spending. Experts have noticed a common practice among clients. One day they promise not to rack up debts anymore, the next day they start incurring more debts and after a year or two, they return to their old ways.

The way out – Getting scared of what you did is good only if you learn from it. Try to get help from professionals or a money coach who can help you acknowledge your habits. It may be possible that you are spending excessively on lifestyle and household items. Once you have identified this, you may come across ways to reduce the expenditure. In this case, evaluating your needs and wants is necessary, as it will help in cutting down the costs.

Debt consolidation is a solution, but it won’t work unless you are aware of the menaces of accumulating debt.You can get rid of debt only if you stick to your budget and don’t spend more than you can repay.
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