6 Common Debt Consolidation Mistakes and How to Avoid Them
The average American has nearly $40,000 worth of debt. This debt includes everything from credit card balances to student loans.
If you have a lot of debt and don’t know what to do about it, you should learn how to consolidate debt. It might make paying off debt simpler for you.
By consolidating your debt, you’ll use a loan to put all your debt into one big pile. You’ll then be able to attack your debt more efficiently than you would be able to otherwise.
Just make sure you steer clear of the most common debt consolidation mistakes. If you don’t make the right moves when taking out a debt consolidation loan, it could come back to bite you in the end.
Here are six common debt consolidation mistakes and some tips on how to avoid them at all costs.
- Taking Out a Debt Consolidation Loan Without Learning About What It Is First
Yes, debt consolidation can be a great option for anyone who is trying to dig themselves out of debt. But one of the biggest debt consolidation mistakes that you can make is taking out a debt consolidation loan without learning about what it is first.
A debt consolidation loan is a loan that is taken out specifically to pay off high-interest debt. Whether you’ve been taking out loans for school over the last few years or doing too much credit card spending, you might have a mountain of debt that you’re struggling to pay off right now.
By using a debt consolidation loan, you can get your debt under control and make it more manageable. You can lower the interest rate on your debt as a whole and start to pay it down quicker than you would be able to otherwise.
It’s important for you to have a very clear understanding of how debt consolidation loans work. If you don’t, you might end up in even more debt than you were in before when everything is all said and done.
- Applying for a Debt Consolidation Loan Through the Wrong Lender
Since debt has become such a pervasive problem in the U.S., there is no shortage of lenders out there willing to extend debt consolidation loans to people. Your job is going to be to track down the right one rather than simply settling for the first lender you can find to extend a debt consolidation loan to you.
You should attempt to find a BBB debt consolidation company that has earned a reputation for lending a helping hand to those dealing with debt. This will put you into a much better position as far as paying down your debt is concerned.
- Deciding Not to Shop Around for the Best Rates on Debt Consolidation Loans
Because there are so many lenders offering debt consolidation loans these days, they’ve become very competitive when it comes to the interest rates that they offer. You should take advantage of this by shopping around for the best interest rates that you can find prior to applying for a debt consolidation loan.
The lower you can get an interest rate, the easier it’s going to be to pay down your debt quickly. Make it a point to spend at least a few days shopping for the best rates on debt consolidation loans before choosing the one that looks good to you.
- Choosing to Pay Off a Debt Consolidation Loan Over a Really Long Period of Time
One of the reasons why people like debt consolidation loans so much is because it provides them with an opportunity to pay down debt fast. By getting access to lower interest rates, they’re able to put a real dent in their debt in no time at all.
There are, however, some people who will take out a debt consolidation loan and choose to pay it off over a lengthy period of time. Some lenders will allow people to pay down debt over the course of 5 years or more.
If possible, you should abstain from choosing this option when you take out a debt consolidation loan. You’ll be much better off trying to pay debt off within 3 years, if not sooner.
- Continuing to Use Credit After Taking Out a Debt Consolidation Loan
By using a debt consolidation loan, you can wipe out all of your credit card debt at once. It’ll be such a great feeling when you first do it.
But far too often, people will continue to use their credit cards here and there even after they’ve taken out a loan to pay their debt down. This will eventually lead to them racking up even more debt over time!
You shouldn’t do this under any circumstances. While it’s not the worst idea in the world to leave your credit cards open to give your credit score a boost, you should stop using your credit cards immediately to avoid getting yourself deeper into debt.
- Missing Payments on a Debt Consolidation Loan
When you take out a debt consolidation loan, you should have a clear-cut repayment plan in place for it. This plan should take into account your ability to repay your loan in a timely fashion.
You should not get into the habit of missing payments on a debt consolidation loan. If you do, you’re going to add late fees to your debt. You’re also going to see your credit score take a tumble before long.
You shouldn’t take out a debt consolidation loan if you aren’t prepared to make payments on it. Getting yourself ready to do it each and every month will be of the utmost importance.
Do Your Best Not to Make Any of These Debt Consolidation Mistakes
No matter how much debt you might be in right now, you can pay it down if you’re willing to work hard enough at it. A debt consolidation loan will make it possible for you to pay off your debt and put it in the past.
Just be sure that you don’t make any of the debt consolidation mistakes that we’ve mentioned here. They could negate all of the good things that a debt consolidation loan can do for you.
Get your hands on more great personal finance advice by reading through the other informative articles on our blog.