For many people, debt consolidation is the light at the end of a very dark financial tunnel. However, you need to understand that all is not sunshine and roses and you need to understand the ramifications of debt consolidation. Does that mean you shouldn’t consolidate your debts, no, you absolutely should but arm yourself with information first? Here is the reality of debt consolidation.
The point of consolidating your debt is too put all your outstanding loans into one place, which includes credit cards, car payments, and various other loans. It is easier to manage when you have one payment per month, and most of the time the high-interest loans like credit cards see a reduction in the interest rate. All of these makes it easier to pay everything off sooner and at less cost to you.
Finding the Right Debt Consolidation Company
Here’s is where the struggle lies, there are thousands of companies out there that do debt consolidation. In fact, since you’ve been thinking about consolidating your debt, you’ve probably come across hundreds of ads. Picking the right company for your situation is what becomes a major task. Here is a video showing you exactly how to choose a debt consolidation company.
Like anything else, it is in your best interest to speak with several companies before you choose the one you will work with. They will all offer you different interest rates depending on the amount of debt, credit score and your assets. It’s a lot like shopping for a mortgage, and like a mortgage, you want the absolute lowest rate possible. Your purpose is twofold; pay off your debt as soon as possible and save yourself as much money as you can doing it.
Interest Rates Can Increase
Debt consolidation companies will justify their high-interest rates by the risk of helping you get out of debt. While this isn’t necessarily a good reason, bear in mind that if you miss a payment without talking to the debt consolidation company first and trying to work out an alternative your already high-interest rate will skyrocket. You are trying to pay off your debt not make higher interest payments, always make sure that your monthly payments are manageable. Should something happen, medical emergency, job loss or something of that nature always call your debt consolidation company right away and try and work something out.
Don’t Fall Into the Same Pattern
Once you start paying down your debt and your credit score increases yet again, you will once again be offered credit cards and loans. Don’t fall into the same trap of debt that you cannot afford, don’t incur new obligations while still trying to pay off the old ones. If you fall into the credit trap again, you will be right back where you started and this time around debt consolidation will be that much harder.