The Most Common Traps To Avoid In Debt Consolidation

November 29, 2014MortgagesNo Comments »

In case you are plagued with high interest credit card debt, you may think that the only way to climb out from the pit you are in is to place all your hopes on debt consolidation. Though debt consolidation looks like the magic potion that can provide you relief from all your debt problems, it still has the potential to put you in more debt than to provide you with relief. Therefore, it is a must for you to look at debt consolidation from the right perspective. In case you choose debt consolidation as the solution for your debt problem, look for the following signs that are an indicating signal of you possibly falling in big trouble.

Assuming that debt consolidation is the solution for all ills with regard to debt

If you assume that debt consolidation is the only remedy for your debt problem, you are mistaken. You will realize this if you look at the track record of these loans. It has been found 70% of those who obtain such loans to solve their debt problems have ended up with more debt after a few years. The main reason for this is the fact that debt consolidation loans will not change your lifestyle. You will feel relieved with the thought that you will easily manage yourself to payback the loans installments once the time span for the payment is increased. In case you need to make a success out of debt consolidation loans, you must realize that:

  • Debt consolidation only works well under the long term basis.
  • Making yourself well disciplined in debt payment is the only way to bring fruitful results
  • You will have no choice but to cut down on your expenditure

Believing that an expensive consolidation service will solve your problem

You must understand that a debt consolidation service is not able to do anything more than you could do on your own. The only difference is that you need to pay them heavily as interest, upfront fees or as fees paid on monthly basis. Therefore, the better option is to do the job of consolidation of your loans yourself. You could change your credit card debt into a more manageable option such as a low interest loan or an unsecured credit. The possibility is there to convert them into a home equity loan as well. These are much better solutions than getting a debt consolidation loan.

It is necessary to understand that debt consolidation provides you relief on paying back loans by reducing the monthly installment and making your loan to span a long time. This means you will pay much more interest than you were expected to pay for your high interest credit card loans in the long run.

Instead of seeking the help of debt consolidation, you can pay your credit card loans one at a time and make great savings. In case you want to know the amount you need to pay in a debt consolidating loan, the possibility is there for you to use an online calculator. With this calculation, you can decide whether you will become a winner or a loser by getting a debt consolidation loan. When you know this detail, you could decide if the particular debt consolidation solution is suitable for you or not.

When it becomes necessary for you to drag your home into the scene…

This is where you are in a risky situation with debt consolidation. In case you need to convert all your credit card loans in into a single home equity loan, you are leaving yourself in a very risky situation. In a loan of this type, you are making your biggest asset, your home in a vulnerable position. Since the interest rates these days are low, it will look like a reasonable solution as your unsecured debts become a secured debt.

In case you think that it is a good move to get rid of your credit card debt with the equity of your hom, it is necessary to make sure that you are able to pay your monthly installments without any difficulty. You also need to make it a point to have at least 20% of the equity of your home intact when you take a credit line or when you take your second mortgage. This is important because if you default on your payment by any chance, foreclosure will be the end result.

In case you are in debt and if you are contemplating on taking debt consolidation credit, it is a good idea for you to have these facts in mind. In case you do, you will be able to get out of your debt successfully despite the fact that you are placing your confidence in a very risky way to get out from your high interest debt.

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