If you are drowning in debts, the only thing that might have been worrying you is how to pay them back. To a great extent debt consolidation can help you get out of your financial crisis. That said debt consolidation only makes it easy for you to manage your debts. You will still have to pay them back. Debt settlement, on the other hand, helps you settle your debts for less. Many debt settlement agencies may even try to get in touch with you through debt settlement leads. But you need to understand that this option would have a negative impact on your credit. If you want to avoid this, debt consolidation would be your best option. However, you will have to make sure you avoid the common mistakes that most people end up making in debt consolidation.
Reloading your debts
Just because you can now use the credit cards that you had previously maxed out, it doesn’t mean you start reloading your debts by buying stuff that you cannot afford. This way you will get back into the same financial mess you were in, before taking the decision to consolidate your debts. It is better you consider using your credit cards for emergencies only. You could even reduce the limit to cut down your usage.
Not choosing the debt management program wisely
Debt consolidation is not the only debt management program when it comes to getting rid of debts. There are different kinds of debt management programs for those who are struggling to pay back their debts. Some of these include debt settlement, credit counseling, and bankruptcy.
Paying too much
If you haven’t taken enough time to research and compare debt consolidation agencies, you may end up paying too much by way of fees, interest, monthly repayment rates, and even the principal amount. It might be very tempting to go with the first name that you come across. But it is not a wise step to take. Even if it does take a little extra time, it is better to shop around and negotiate for better terms.
Falling into scams
As a debt relief program, debt consolidation sells like hotcakes. Nevertheless, there may be many salespeople who may be waiting to cheat you. They may lure you with affordable rates, but there may be certain hidden fees that you may not be aware of. It is always better to check the reputation of the debt consolidation agency and do some research before signing up for the service.
Dropping off the original plan
A debt consolidation doesn’t actually mean you can take it absolutely easy to repay your debts. You will have your deadlines and you will have to stick to them. If not, it might affect your credit badly. Once you choose a particular debt consolidation agency, you need to take time and plan up your resources well in advance so that you can follow the program completely. Dropping it off midway is surely not going to help you get rid of your debts.
Not addressing the real problem
Finding out the real problem behind you being in debt is crucial in debt management. More often than not this has to do with your poor decision-making abilities or bad spending habits. You may have to identify the flaws in your lifestyle and make the necessary changes. Else, you will end up in the same mess even after debt consolidation.
Consolidating wrong debts
Debt consolidation works well for paying back high-interest loans. If you are a student who has taken out loans at low-interest rates, a better option for you would be to transfer them to a zero percent credit card. It is better to figure out the right debts to consolidate before signing up.
Working with wrong professionals
Reputed debt consolidation agencies are usually certified by the Federal Trade Commission. You may have to verify this before making your decision. Also, take some time to check out their websites for reviews and find out if the company can be trusted.
When it comes to reducing the number of your debts, lowering your monthly rates, or improving your credit score, debt consolidation could be an effective remedy. However, when finances become a huge problem, it is always better to consider other options like debt settlement. Do give a thought to the debt settlement agencies that come to you via debt settlement leads, before you make your decision.