Stop looking for magic pills – Take care of your finances through debt consolidation

For majority of the consumers in the United States of America, the language of finance can be indeed tough to understand, especially if you’re someone who is drowning under a mountain of debt. Are you someone who has fallen behind on your monthly payments? Are you worried about get harassing calls from the creditors after your accounts are turned over to the debt collection agencies? Well, majority of the people in America are living with the fear of falling in debt and being harassed by the credit card companies. Thankfully, there are the non-profit institutions that are there to guide you through the right path when it comes to paying back your debt in the most systematic manner.

Debt consolidation – How do they work?

Since debt consolidation is a term that has become the buzzword for the debtors throughout the nation, it is vital for you to know how they work. Firstly, you need to know that debt consolidation and debt consolidation loans are entirely different things and while for some debt consolidation loans may seem to be the best idea, they’re often a risky solution to their debt problems. There are some debt consolidation loans that could turn into bigger problems in the long run as majority of the people fail to manage their finances while combining their debts through a new loan. They keep on spending money, incur more debt and thereby end up paying more on the interest rates carried forward throughout the longer repayment term. During such situations, you should learn how to avoid debt consolidation loans and rather take help of debt consolidation programs as they not only help you get out of debt but they also teach you some necessary skills to stay out of debt.

Debt consolidation traps to avoid – Beware of the fake promises

Debt consolidation loans are more like politicians, they make a lot of promises and they fail to deliver most of them. They promise to offer you low monthly payments, reduced interest rates and also the convenience of a single monthly payment. In case you’re drowning in a sea of high interest debt, you could help reduce the monthly payments and pay down the entire debt in easy and affordable monthly payments. However, there are too many debt consolidation scams that have filled up the entire financial market. If you’re not aware of them, read on the rest of the article.

  1. When you use debt consolidation as an ultimate panacea: The ultimate goal of a debtor is to climb out of debt and consolidation loans usually don’t carry a good track record. In fact, according to certain predictions at least 70% of people who consolidate their debt end up with more debt in a few years. For instance, one may combine credit card debt into a single loan and then take irresponsible steps to max out their credit cards. So, it seems to be the fighting-fire-with-fire approach towards debt repayment.
  2. When you rely on a costly consolidation company: It is true that the debt consolidation services don’t do much for you that you can’t do on your own. Moreover, they will often ask you to pay hefty fees for their services, either in the form of interest rates or advance fees or the monthly fees when you run payments through the company. Hence, if you don’t want to pay such hefty fees for combining your debts, you will be probably better off in looking for debt consolidation options on your own. You may consider moving your high interest cards into a low interest card.
  3. When you put your home at risk: Are you considering taking out a secured loan? If you have accumulated enough equity on your home loan and you wish to tap this equity, you should be watchful enough. When you put your home at risk, you have to make timely payments towards the home equity loan. Although the interest rates are pretty low on home equity loans, yet they call for timely payments only for the reason that they have your home set as collateral to the loan.
  4. Debt consolidation loans often end up with more payments: This is one among the hidden problems of debt consolidation loans. While you may think that debt consolidation is lowering your monthly payments, this may not always be the case. Due to the extended repayment term, you may end up paying up more in the form of interest rates in the long run.

Hence, when you’re deciding on the debt payoff strategy, take into account the above mentioned points. Don’t consider consolidation as the end to your debts. Always remember that you have to keep taking the required steps to control your finances while consolidating your debts. Click here for more information.

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