People often ask for opting for debt consolidating and whether their decision for this would affect their credit. Contextually, opting for debt consolidation can be a good idea or a bad one, which largely depends on your financial situation and your personal one. If you are going with the notion for consolidating your debt, you may have to witness deficient monthly payments, if that is done with a loan! But, that can be effective for providing near term relief.
Moreover, if you consider the concept of debt consolidation for a lengthier term, you will be paying more interest in total. Before you get in the various options for getting your debt consolidated, how about understanding your financial terms for a valid selection? Indeed, that would be a fantastic idea.
Many of us end up taking debt consolidation to lower our interest rates or simplify our lives by paying just one loan. But is it really worthy? Well, before going into more detail about the risk v/s benefits of debt consolidation, let’s first understand the term debt consolidation.
On a deeper note!
Debt consolidation simply means putting all your debits and credits in one bag and take another loan to pay them as a single entity. In other words, it sets you free from all your creditors, and you just need to clear your dues with the new creditors without losing your credit score. Its main motive is to rescue you from multiple creditors and allowing one to pay off his debts at lower interests. But again, like a coin has two faces, debt consolidation has its risks and benefits. However, one is to benefit more rather than suffer any losses. Let us explore the benefits first.
Debt Consolidation- explained.
Firstly, debt consolidation should be considered by those who wish to lower their interest rates and end up multiple bills in the month-end. In addition, it doesn’t allow any more harassment from your debt employers and creditors. Furthermore, it stabilizes your financial status and doesn’t drag you to a state where you can lose the credibility of being a worthy consumer. In short, it never shows up on your credit scores. This combination of debts into one even helps to alleviate your finance-related stress levels. This may definitely make your life easier but may also prove wrong at times. So it is best to consider debt consolidation only under these conditions:
- If multiple bills are a problem
- If you often tend to miss the deadline of some of the other
- If your credibility is at a sake
- If your financial condition is shaky
- If you owe an outrageous amount
These are some of the most important factors one should look into before opting for debt consolidation; else it may further deteriorate your financial condition and stress levels. It is never wise to elect for debt consolidation for a lower credit, lest you end up paying more than what you actually should. Similarly, never expand the duration to pay your debt, just to decrease interest rate, which would again shell out extra money.
In the present scenario, it not only about the current money that speaks but also the future financial expectations that tunnel its way across. Before you move on with the notion of opting for debt consolidation for your financial terms, steeping in to know the dangers of debt consolidation can provide a practical approach!
The top 4 dangers of debt consolidation!
While debt consolidation can be a great way to reduce your loans and lower your monthly payments, but it is always not the right choice. The concept may seem appealing for its convenience to handle the loans, as it simplifies the process of paying back! But you don’t need to entail a risk-free process for your financial aspects. Scroll down to know the validated and potential risks for getting the idea of debt consolidation to rule your financial proceedings!
Going deeper into debt
Well, that is known to the biggest risk of opting for debt consolidation. In the present scenario, it is seen that people apply for new credits even before solving the current spending problems. If you are up to similar foregrounds, get yourself warned beforehand. In this process, you are already into debt in the first place. For a solution, you can get a personal loan or opt for a balance transfer card to repay existing debt. If you follow the latter approach, certainly, you will have more credit in your card that is still available.
But, if this is not the case, and you start charging on those cards, eventually, you will end up in the trap! You could realize that you have incurred high balances again, so the debt consolidation does not work in this case.
Paying more amount as interest
You know the most significant advantage of opting for debt consolidation is to lower your interest rates! But in the longer turn, is the interest rate, the only factor for deciding the amount of interest that you would pay?
Indeed, NO! Your timeline that has been set for repayment of the loan also upscales for a significant count for deciding the total cost that git incurred to you. In this process, if you opt for debt consolidation and lower your monthly payment, you are undoubtedly stretching out your repayment timeline. In this case, you may count for a reduced interest rate, but what about the total cost that got incurred to your name?
Eventually, you will end up paying more! And that’s the problem in the longer run. The idea of debt consolidation may sound good, but the amount that’s gets incurred in the final timeframe can be huge with the lowest interest rates.
Have you heard of a debt consolidation scam?
If you are caught up in a debt consolidation scam, that would be the most expensive mistake for your financial terms! Some lenders do market the various debt consolidation loans for consumers who are struggling to track up their economic frontiers. But that may not be the actual picture, and there is more to add. These loans that are provided for the struggling customers are not consumer friendly. You may notice those surfing interest rates for opting for debt consolidation loans. Moreover, you may also witness the loan terms to be exceptionally long and may incur exorbitant penalties for every missed payment.
Putting your home or retirement at risk
You can get a personal loan for a way out to consolidate your debt. You even the balance transfers may also [provide you a good option. Well, opting for options that do not charge you additionally on any home or retirement aspects can be the best decision for debt consolidation.
But in the present market, some borrowers prefer to take home equity loans to pay the existing loan. If you are on a similar notion, that could be one of the riskiest decisions for getting your financial aspects back on track.
Choose debt consolidation only if any of the above-listed criteria matches yours and will definitely help you relive your credits. A number of companies provide you with debt consolidation features, but some may not be real from inside and may even misguide you. Therefore, it is best to research all the companies online as well as from known experts and people who hold the experience to get the best deal for you. Choose the best three and compare their quotes and features to make the most out of debt consolidation. A right lender will definitely include lower payments, guaranteed credibility, improve your financial condition, and, most importantly, will make your life stress-free and straightforward.