Making The Most Of Your Money

Debt Consolidation Traps To Avoid

7 August 2016 by Glen Robinson

Being in debt feels like a never-ending cycle. If you pay your minimum payments, then the interest continues to add up; if you pay more than the minimum, you end up with less money to live on, which increases the possibility of reaching for your credit card when money is tight. Thankfully, debt consolidation is a great option for many people. However, if you are not careful, then debt consolidation can make your debt problems even worse. Below are the most common debt consolidation traps. Avoiding these can help you achieve financial independence with minimal stress.  

Not Paying the Minimum Credit Card Payment

When you are consolidating the balances on several credit cards into one new card, you need to pay the minimum balances on the outstanding cards. The reason for this is that transferring credit card balances is often not immediate, and if you become past due on your old balances during the transfer, then you might be assessed late fees in the interim.

Applying for a Scam Debt Consolidation Loan Online

The online world is full of scammers, and debt consolidation is no exception. Unfortunately, there are scam artists online that promise to help those with little or bad credit get a consolidation loan. The problem with these scammers is that they usually want a payment upfront. It is important to check any lender you are considering with the Better Business Bureau and the Attorney General's office in your state.

Applying for More Than One Loan at the Same Time

You may think that you are smart by applying for more than one debt consolidation loan at the same time. However, this is not a good idea because each consolidation loan you apply for takes a hit against your credit score, causing it to lower. So, your credit score could be dropped by several points if you apply for more than one loan at a time. Ironically, debt consolidation often requires a decent credit score, and applying for multiple loans can hurt your chances of qualifying for a loan. Before applying for a loan, be sure to find out the qualifications first, so you are not wasting your time by applying for something you don't qualify for.

Running Up Your Debt Again Later

If you take out a debt consolidation loan, but you don't change the way you are spending money, you will just end up in the same consolidation cycle all over again, even if you have already paid off a debt consolidation loan. It is important to look at the reasons that your debt is so high in the first place. It may be that you need to make a budget, so you know exactly where your money is going each month. If you need the extra help, you can employ the services of a financial planner or credit counselor to help with your spending habits and savings goals.

Getting out of debt might feel impossible, but it isn't. Solid planning, including cutting extra expenses and making a budget, can help you start the road to financial independence. Debt consolidation programs are a helpful tool, which when used correctly, can help speed up the process. Talk to a financial planner, like http://www.hbkswealth.com/, for more help.

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