Most of the time we are just not satisfied with what we have. We have a constant desire for more things than we can afford. Exactly why many of us end up spending more than our available resources and as a result, we accumulate huge debts. The Federal Reserve Bank of New York has reported that household debt in the US has reached its maximum ever amount, which sums up to more than $14 trillion.
Debt consolidation loan is the best option to clear out your financial mess. Through this process, you take a fresh loan in order to pay back all your previous loans. All your existing outstanding loans are integrated into one single loan and you will need to process a single monthly payment to repay your debt consolidation loan. The rate of interest applied at this new loan is also relatively lower and you obtain a more manageable monthly repayment plan.
Debt consolidation is an excellent solution for managing your debts but you must understand how it actually works. Unless you bring about some significant changes in your lifestyle and spending habits, you will go back to the debt trap within no time. Try not to make these debt consolidation mistakes in order to lead a debt-free life ahead.
You start on the same path you followed earlier
Debt Consolidation
Debt consolidation is just a simple and easy means of managing your previous debts. Your debts will in no case be erased on its own. Most of us with this habit of spending extravagantly will go mad (again!) the moment they realize that their blocked credit cards are now available.
You will again start purchasing items out of your reach and debts will start to pile up. This will lead you nowhere but to another financial crisis. Reloading debts is the biggest debt consolidation mistake and you must make sure to avoid it.
Seal all your credit cards or just keep one with a low credit limit for an emergency. This will keep your hands tied. Keep in mind that you should use it only during emergencies.
Choosing an Inappropriate Debt Management Program
Debt consolidation may not be the best-suited program for managing debt for you. This is a crucial choice for your financial status in the future years, so, make this choice only after looking at all other aspects.
You can have a go at other options like debt settlement, credit counseling or bankruptcy. You must look at the difference these various options can have on your financial health, understand your situation and only then make the right choice. If necessary talk to a debt collector and find out the best option suitable for your condition. Check their reviews online at platforms like Glassdoor and get in touch with them via their social media platforms is the best approach to contact them. For example, check cedar financial reviews here.
Engaging with The Wrong Professionals
Engage only with reputable debt consolidation organizations that have been certified by the authorized Federal Trade Commission. A look at the firm’s online reviews is quite helpful in choosing the most reliable company to solve your financial mess at best prices.
Before signing the contract with any of these consolidation firms, carefully read through all the terms and conditions. This will help you avoid fraud. Beware that there are many such scams that can worsen your situation. Also, avoid making any sort of agreement with companies that are asking for upfront fees before the loan approval.
Consolidating the Wrong Debts
Debt consolidation is most efficient for repaying all kinds of high-interest loans. Employing debt consolidation techniques for clearing out your low-interest loans would be a mistake. You can also consolidate all your high-interest debts first and then the low-interest ones.
Keep in mind that any of your student loans are low-interest loans for which you can use a credit card with zero percent balance transfer, suggests professionals at cedar financial.
The bottom line
Lastly, remember that even after consolidating your debts, your work isn’t done. You must make sure to make all the repayments as per the proper schedule if you want to live a debt-free life in the future. Unless you stop spending beyond your limits and start making the right financial decisions, your situation will keep on deteriorating.
Moreover, all your debts and missed or late payments records will have a negative impact on your credit report. This can make it difficult for you to take any more loans in the future. You may not be able to qualify for such benefits owing to your previous records.
