Avoid These Debt Consolidation Mistakes
Choosing to consolidate multiple debts into a single loan payment can be a wise financial decision, but like many monetary choices, it will have its drawbacks along with its benefits. There are several things you should know before you choose whether or not to elect debt consolidation as part of your strategy to become debt-free.
Firstly, you will want to make sure that you do not settle too quickly for a loan when it is offered to you. You will want to carefully review and select among several different loans offers—one big reason why people choose to consolidate is for the lower monthly payments, so be sure that you are taking full advantage of this by not taking the first loan that is offered to you without looking any further. Oftentimes the first offer is not the best, and you don’t want to be in a worse place than when you started.
Next, you want to be certain that you don’t fail to understand your loan agreement very well. Read over the terms carefully, and watch out for potential future headaches written into the debt consolidation contract, like payment adjustments, penalties, and even balloon payments. Know your terms and be sure that you don’t settle for an offer that will end up hurting you more than it will help.
You also want to avoid ignoring the interest on your monthly payments. People can often get caught up in focusing on the payment itself, but do remember that your actual payments are not the cost of the loan; your monthly interest is really what your loan is costing you. Know that there are several different kinds of interest rates; some of the rates can fluctuate, and some can stay the same throughout your loan repayment period. Dishonest lenders may distract you by encouraging you to zero in on the payment itself, but they are making a profit off your interest rate, so you want to ensure that you are receiving your loan on fair terms.
Finally, remember that debt consolidation is merely a means to an end, not an end in and of itself. After you have consolidated and you find that your payments are comfortably lower, it can be tempting to just settle into a pattern of paying your minimums and not aggressively getting rid of your debt. Be sure to take charge and make a strategic plan to pay off your debt faster after enlisting this consolidation tool to achieve your financial goals.