3 Traps and 2 tricks to avoid in credit card debt consolidation
If you are knee deep in debt, you may consider credit card debt consolidation as the solution to get rid of all your debts. But, before going for debt consolidation, you must consider the tricks and traps of the process so you can prevent yourself from making your debt situation worse.
Traps of consolidation
Here are the 3 traps you may face when you go for consolidating your credit card debts.
1. Lower monthly payments â€“ Credit card debt consolidation loans may offer low interest rates and hence you have to make lower monthly payments. Consolidation loan helps you to pay off all your credit card debts with a lump sum amount. This helps you to get a reduction on your interest rate and thus, lowers your monthly payment. However, these reduced monthly payments may mean that you may have to pay more interest over a longer time period. Debt consolidation may also trap you with various hidden fees and add-on costs.
2. Frightening tactics â€“ When you enroll in a debt consolidation program, your debt counselors may try to use the scare tactics. They may show that you may take a long time in paying off all your debts if you donâ€™t take help of credit card debt consolidation. Do not fall into such traps, try to use the free online calculator and find out the time period that you actually may take to pay off your debts without taking help of debt consolidation.
3. Lower interest rates â€“ If you have a good credit, you may get consolidation loans at an interest rate of 14%. But, people who are considering debt consolidation loans usually have a bad credit. Those with poor credit may have to pay interest rates higher than 18% to 21% in order to secure a consolidation loan. You may also have to pay up front charges for more than 10% for such loans. Thus, debt consolidation is of no use unless you are able to get a loan with low interest rate.
Tricks of debt consolidation
Here are 2 tricks you must follow when you go for credit card consolidation.
1. Avoid temptation â€“ Debt consolidation may help you to get rid of all your credit card debts. This may tempt you to start using your credit cards and you may fall in the debt trap again. Thus, stop using your credit cards when you enroll in a debt consolidation program.
2. Shop for the best loan â€“ If you have decided to take out a loan to consolidate your credit card debts, you must shop around until you get the best offer. You may consider loans offered by the credit unions as they usually provide you with the best interest rates.
Credit card debt consolidation may help you to get out of debt and stabilize your financial situation. However, if you do not consider the tricks and traps of debt consolidation carefully, you may worsen your debt situation instead of getting out of it.