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Published On: Mon, Dec 12th, 2016

Ways to Avoid the Debt Consolidation Traps

When you are faced with ever-mounting debts and you are not able to make payments on due dates, you are in the midst of a huge financial crisis that is slowly getting out of hand. At this juncture, debt consolidation sounds like a boon, the best thing that could ever happen to you. Your line of credit, your credit cards and of course, other loans all get consolidated into one major loan with a relatively lower interest rate and definitely with a lower monthly payment that is actually manageable in terms of your current income. However, you should be savvy while consolidating debts.

There are some consolidation traps that should be identified and tackled effectively to reap the benefits of consolidation completely. You must never forget that consolidation is supposed to act like a temporary bandage over a bigger issue. You need to tread cautiously; otherwise, you could be in double trouble. Here are some extremely common mistakes made by consumers while consolidating debts and effective ways of avoiding them.

The Trap: You Are Not Recognizing the Root Cause

You need to acknowledge and accept the root cause of the financial mess that you are in currently. Most people opt for debt consolidation because their spending had gone out of control and they were unable to handle the repercussions. Consolidating debts to get out of debts eventually and effectively could be a solution to your current financial issue but you need to identify the root cause why you are in this sort of financial distress in the first place. Otherwise, it would not be too long before you again find yourself in the financial crisis. You need to make lifestyle changes to avoid debts in future. You could opt for consolidation only if your debts are over $10,000. Obviously, those debts could not have happened overnight. You need to change your habits and also make a number of sacrifices, instead of simply looking for an instant solution.

photo: TaxRebate.org.uk

photo: TaxRebate.org.uk

The Solution: Be practical and admit the mistakes you have made. Face facts and acknowledge your previous actions. Recognize the past mistakes by consulting with professional financial advisers or credit counselors or money coaches who could be scrutinizing your spending pattern and would be assisting you in identifying the trends. Maybe you have been used to overspending on basic expenses like car payments, housing, and living costs. Therefore, you must identify and follow ways to downgrade. You could stop overspending on entertainment. It is the time to substitute old habits with better and new ones. Keep tracking your spending regularly and keep evaluating the differences between wants and needs. People who have successfully managed to alter their lifestyle and modify their habits are good candidates for consolidating loans.

The Trap: You Fail to Do Ample Research before Consolidating

You need to learn and understand the various consolidation options available to you before opting for consolidation. Do ample research. Do not forget that there are various ways of consolidating your debts. You could commit to unsecured or secured loans. You could consider transferring your outstanding debt onto an existing or a new line of credit. Alternatively, you could consider pooling your debt effectively on a credit card balance transfer. Remember that every option would be having its unique benefits and certain pitfalls. These would be differing according to your circumstances. You would be in a mess if you are not sure about the agreement terms before signing it.

Solution: You need to be proactive while searching for the most effective consolidation plan. Assess all your unsettled or outstanding debts. You need to consider a bit of shopping around finding the best interest rates after adequate comparative assessment.

Creditors would be particularly, interested in working with you. If you are neck-deep in debt because of a health emergency, job loss or some other mitigating circumstances. You should understand the implications of consolidating your debts. You should be strategic and must double check the fees and other relevant info.

Trap: Consolidating the Wrong Debts

In certain cases, you would be finding that consumers are consolidating all their existing debts blindly even those that offer low-interest rates like the student loans. You need to be cautious or else, you would end up rolling in even the credit cards with low-interest rates. If you are not paying attention you would be paying a much higher interest just for the sake of one consolidated payment.

Solution: You must consolidate only the high-interest debts and it is a wise idea to leave out all your low balance or low-interest debts as separate payments.

Conclusion

If you seek the services of a competent and trustworthy debt management company and if you are careful while consolidating your debts, you would emerge as the winner. Remember debt consolidation is the first effective step toward freedom from debts and financial crisis. You need to assess your spending pattern and determine the root cause of the present financial instability. Once you know your mistakes, try to rectify them and avoid them by making concrete lifestyle changes.

Author: Barrack Diego

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  1. Sujain Thomas says:

    Truly said that there are innumerable peoples trapped in debt. Mostly the peoples fall into debt due to credit cards. So there are several ways to get out of debt. The best way is debt consolidation. In this article there are ways to avoid debt consolidation traps. Everyone facing the debt problem should read the article. There are some consolidation traps that should be identified and tackled effectively to reap the benefits of consolidation completely. Overall the article is good. Hope to see more such articles in future.

  2. Andy Brown says:

    Thanks a lot for the article. It help me very much as I have no idea about the above concept & this is the one of the effective depth consolidation plan when someone is suffering such financial crises & have pay their money someone than this is the key solution for those who has financial crises, all loss.you can be aware Yourself by this kind of traps by Check with the Better Business Bureau about any organization you’re considering, look at the company’s website and read through reviews. If the organization is bombarding you with junk mail or aggressive sales tactics, avoid it.

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