Neon Funding and Credit 9 have joined Saxton Associates and Hornet Partners in flooding the market with debt consolidation and personal loan offers in the mail. The problem is that the terms and conditions are at the very least confusing, and possibly even suspect. The interest rates are so low that you would have to have near-perfect credit to be approved for one of their offers. Best 2020 Reviews, the personal finance review site, has been following Carina Advisors (also known as Corey Advisors, Pennon Partners, Jayhawk Advisors, Clay Advisors, Colony Associates, and Pine Advisors, etc.).
There are many options available for people who are struggling with debt. These debtors may be able to find relief with the help of debt and credit consolidation programs. Debt consolidation programs essentially combine your individual loans and convert them to a single loan that is easier to deal with on a monthly basis.
Debt and credit consolidation provides debtors with a feasible way out of debt; however, they may land up in a worse situation than before if they are not careful. Here are some common debt and credit consolidation mistakes to avoid. It isn’t easy to find a company that can legitimately help you erase your debt.
1. Trying to manage debt with a high interest credit consolidation loan
People usually take out consolidation loans because it reduces the number of payments they have to make at the end of each month. If all your credit card bills have been paid off using a single large loan, you will be responsible for paying only one bill per month.
However, this consolidation loan should be taken out only if it is being offered at an interest rate that is lower than the average interest rate of your existing credit cards.
There’s no point in taking out a consolidation loan that is more expensive to deal with on a monthly basis compared to your existing debts.
2. Poor repayment practices
Many debtors manage their debt with credit consolidation loans because it provides them with immediate relief. However, they may find themselves with bigger problems in the long-run by choosing a loan with a long repayment timeline.
Loans with low interest rates are typically offered with longer repayment timelines. As a result, debtors may end up paying more interest over the course of the consolidation loan compared to the total interest payments on their existing loans.
Debtors should manage their debt with credit consolidation loans that offer a good balance between interest rates and debt repayment lengths if they wish to ease their burden in the long-run.
3. Allowing the loan’s promotional rate to expire
Some debtors may consolidate their debt with the help of a balance transfer credit card. This method works because these cards are offered through promotional deals with 0% APR. However, these deals are typically valid only for a limited amount of time (usually 12 – 15 months).
This creates a challenge for debtors as they will be tasked with paying off their full transfer balance before the end of the promotional period.
If they fail to pay off their balance in full before the promotional period ends, they will be charged the card’s regular APR, which may be incredibly high. Debtors should manage their debt and credit consolidation with this method only if they are confident that they can pay off their balance in time.
4. Ruining your debt and credit consolidation by overusing your credit cards
People that use loan consolidation as a way to pay off their credit card debt will be able to use their credit cards again in the near future. However, they should avoid using these cards because they will just end up in debt again.
These debtors will then be tasked with paying credit card bills in addition to their consolidation loan. The last thing anyone needs is even more loans, so you should avoid giving into temptation and using your newly freed up credit cards.
Manage your debt and consolidate your credit using other methods if you’re not willing to lock away your credit cards during your consolidation loan repayment period.
5. Not keeping a rainy day fund
Many people keep an emergency or “rainy day” fund tucked away to help get them through difficult times. However, debtors who are distracted with paying off their debt may forget to contribute to their rainy day fund.
This fund can be used to make day-to-day payments and avoid using your credit card. Debtors risk racking up even more debt if they opt to use their credit cards instead of their rainy day funds.
It’s counterproductive to manage your debt and consolidate your credit if you’re only going to use your credit cards again.
6. Forgetting how you got into debt in the first place
Debt consolidation can provide some relief to debtors; however, this relief may be short-lived if the debtor hasn’t learnt their lesson about racking up debt.
Individuals with bad spending habits often land themselves in debt. They may have a harder time paying back their debts due to their repeated spending habits. These debtors will need to learn better budgeting practices if they wish to stay on track with paying back their consolidation loans.
Debt and credit consolidation can only take you so far if you’re unwilling to manage your finances responsibly.
7. Not exploring all the available options
Debtors that choose to consolidate their debts should look into all the available options to find the one that works for them. Some of these options include:
- Transferring all your credit card debts to one card using a balance transfer
- Getting a secured or unsecured loan from the bank
- Housing all your debt by opening a new line of credit
Each of these options come with their own advantages and limitations. Debtors should see what the most financially sound option is, and also consider the one that is easiest for them to pay back.
If you’re confused about these debt and credit consolidation options and don’t know which one to choose, you should consider seeking help from a credit counsellor. They may be to provide you with some guidance regarding consolidation loans given your unique set of circumstances.
Is debt and credit consolidation right for me?
As you can see, there’s no shortage of things to look out for before using debt and credit consolidation. However, don’t let these reasons demoralize you. Plenty of debtors are able to get out of large debts with the help of consolidation.
Anyone can maneuver themselves out of debt successfully with the right planning and determination.