Tips to Avoid Common Debt Consolidation Traps

2 Mins read

Debt consolidation is a process of debt restructuring where most of the pre-existing debts and loans are repaid by taking up a loan. Individuals drowned in debt often consider this as their last alternative to reduce debt or simplify the process of their loan repayment. Interestingly, it has been observed that debt consolidation programs are also taken up by individuals that are capable of repaying their debts. 

Ideally, debt consolidation should only be considered as an option by individuals that are sure of the fact that this is the only way they can repay their debt. Instead of taking the risky shortcut of debt consolidation, they should focus on better management of their personal finance by following the steps mentioned below. 

  • The very first step is to get hold of all your recent debt statements including medical billing statements, student loans, car payments, and credit card debts. Using an Excel spreadsheet, list down all the items of outstanding debt along with the monthly repayment amount, interest rates, and creditor’s contact information.
  • Often times, the debts resulting from high-interest credit cards are the most difficult ones to deal with. This is why you should try to manage them first. Contact the credit card company and find out if it is possible to sign up for a new card with no interest balance transfer facility. In most cases, this zero interest period is approximately 18 months or one year. Even if this time period is not sufficient to clear off the debt completely, it is possible to make great progress towards financial freedom from debt.  
  • At the time of financial difficulties, explain your condition to the creditors, and request lower monthly repayments on debt owed. If the situation is precarious, let the creditor know that you may have to consider filing for bankruptcy. In the case of unsecured debts, creditors run the risk of losing everything unless they revise the payment schedule. 
  • Please be mindful of the fact that debt consolidation is not the only way to reduce your debts. By planning your finances effectively, it is still possible to repay all your debts and save your credit score. In case of multiple repayments, set up a direct debit with your bank. Try to cut out all unnecessary expenses to organize your finances better. 

Tips and Warnings: 

  • Be extremely careful about avoiding scams. Avoid debt consolidation sites and aggressive sales agents that ask for deposits up front. Before signing up, always evaluate the benefits thoroughly. 
  • Research thoroughly to find out affordable debt consolidation loans. In search of lower monthly repayments, don’t settle for a debt that is more expensive compared to what you already have. 
  • Always remember that the best debt consolidation programs are the ones without any prepayment penalties. If debt consolidation USA is the only option for you, read the fine print and never sign up for programs with prepayment penalties.
  • If possible, avoid using credit cards. Leave your credit cards at home and shop with cash at hand. 
  • Before going for a debt consolidation loan, bear in your mind that all types of debts cannot be consolidated.  Debt consolidation facility is generally not available for debts that have a high rate of interest in debt consolidation schedules. 
  • Regardless of how bad the situation is, never put your house in danger. If you default payments, you may lose your home forever.  
  • Finally, avoid discussing your financial issues with unscrupulous experts. Talk to your credit counselor or banker for information on all available options.

If you are worried about your debts, you may also seek expert opinion from National Debt Relief.  

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