Watch Out Before Opting For Debt Consolidation

A single event can trigger financial calamities; an unexpected celebration, a medical emergency, you can’t predict when life decides to throw a curveball. With increasing, debt and bills, opting for a debt consolidation program can be quite helpful. As the term suggests, your outlying debts like credit card bills and loan repayments can be integrated into a single EMI repayment option. This can help you simplify your payments but it does not minimize or remove your existing credit bills.

Debt refinancing also helps you to avail one loan to repay your accumulated debt. It allows you to secure one loan at reasonably reduced rates, which you can redirect towards paying your existing financial bills and debts.   

Here are some common mistakes people commit while signing up for a debt consolidation loan 

• A lot of people who apply for debt consolidation loans are not aware of the details. It is essential to understand why you require a debt consolidation loan and whether you actually require it or not. You might end up defaulting on it like the other ones. 

• People don’t realize they might have other options. As debt consolidation loans, there are a lot of other options you can choose from since there is no standardized operating method for debt consolidation. You can choose to shift your credit cards into a single one or opening a new credit line or securing a loan from a bank or any other financial institution.

• People lack credit discipline. Debt consolidation can be a risky business if not done properly. A lot of people with bad credit scores tend to have bad spending habits. If you close multiple credit cards at once, it might not reflect well on your credit score.    

• Most people lack a solid repayment plan.  Consolidated loans tend to become long-term loans if you are making the minimum monthly payment. You should direct your finances towards paying off your debts at regular intervals without delay. The idea behind a consolidated loan is to become debt-free soon and using additional income or unexpected refunds and gifts to repay your loan would be a wise strategy.

The author is Co-Founder & CEO, Smartcoin Financials 

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