It is relatively easy to explain the pros and cons of debt consolidation but learning how to attempt debt consolidation correctly can be a little trickier. Problems stem from feelings of panic and helplessness, and can happen to anyone. Eager to free themselves from the stranglehold of debt collectors, people jump into consolidation without thinking twice. In many cases, this quick action makes worthwhile options disappear so people cannot make the best possible decision for their situations.
By being aware of potential mistakes when consolidating, you can gauge how credible your debt counselor is and whether or not debt consolidation is in your best interest.
Not checking your budget.
Most problems stem from monthly budgets. Before consolidating, you should analyze your ability to make payments. You do not have to match your income to your expenses perfectly, but you do have to be realistic. While these problems are not of concern to everyone, they do seem to represent the majority of regrets people have when consolidation somehow goes wrong.
Before consolidating your debt, you need to be aware of where your immediate financial problems lie. You should be familiar with your credit reports from all three of the major consumer credit reporting agencies.
Not doing the math.Many people simply assume their credit counselors will come up with the best solution to their financial situations. Sometimes, however, your credit rating necessarily will get worse before it gets, and this is a fact of which you must be aware. Your loan agent needs to make money, and one way to do this is by increasing your interest rate. In the end, while you may enjoy a temporary reprieve, you also may end up paying more in the long-term. Crunch those numbers and compare.
Overlooking some debts.
Save all invoices and utilize your credit report. It is possible that some of your debts have not yet been reported to the credit agencies, and it is all too easy to forget about a debt or two when under stress. Buckle down and open all those bills when considering debt consolidation.
Including some debts you should overlook.
Some debts already are at low interest rates, and while consolidating them into a slightly higher interest payment plan may seem convenient, you will end up paying more than necessary. Contact your creditors to see where you stand, and remember that you are at a much lower risk for creditor harassment once you have begun the credit counseling process.
Not looking for the best credit counseling and debt consolidation services by overlooking quality, professionalism, reputation or ranking for honesty.
Look for certifications and qualifications of staff. The consolidation company you choose should be able to boast about its reputation and personnel.
Not knowing the costs of consolidation.
There may be fees for the service you receive - do not let them come as a surprise.
Not asking about specific services and expected results.
When will I become debt-free? How much money can I expect to save?
Not working with your spouse or partner.
If one partner has irresponsible spending habits that are unlikely to change or improve, a financially mismatched couple needs to see a credit counselor before they end up seeing a lawyer!
Not saving the “savings”.
This includes adopting new debts, spending the saved money on nonessential expenses, or failing to prepare for emergencies with a specific fund.
Not understanding all the terms of the consolidation.
If there are terms and conditions that you do not understand, ask! Your consolidator should encourage your understanding. Contracts should be stated clearly and without small print.
Not addressing promises and guarantees.
Many ads will promise a low rate, but you will never see it. Ask why.
Not breaking your own rules.
Heed your instincts. You do not want to have to say, “I should have done this….”, or “I knew it would end up this way…”.
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