Mistakes Commonly Made in Debt Consolidation And How To avoid Them

Debt consolidation is a resourceful way of lowering debt payment obligations, reigning in interest rates and getting on the path to financial freedom. However, when used incorrectly, consolidating debt can lead to even more financial troubles and even personal bankruptcy. If you are considering consolidating your bills, don’t make some of the most common debt consolidation mistakes.

Taking High Interest Rate Debt Consolidation Loans
Many people who have high debts to consolidate also have a less-than-perfect credit record. If your score is too low, you may only qualify for high interest rate loans. Before accepting money from a lender, find out what types of fees are associated with the loan, as well as how much money you will pay in interest over the life of the loan. Consolidating with a rate higher than your credit card and other existing debt interest rates is counter-productive.

Failure to Change Spending Habits
If you are in debt as a result of living beyond your means, you must change your spending habits after acquiring a consolidation loan. Those who fail to do so often go even deeper into debt, as freshly paid-off debt balances can give the illusion of immediate financial freedom. Instead, stop charging new purchases and start using your money to pay down outstanding balances.

Your credit score is one of the most important factors lenders look at when you apply for a loan or credit card. Getting a higher score is one of the best ways to secure a lower interest rate and better terms when you borrow money.

Credit Report
Your credit score is based completely on the information contained on your credit report. In fact, you have three separate credit reports, and therefore, a separate credit score based on each report. The credit bureaus gather information that’s compiled on your credit report. This information includes each of your loans and credit lines, when they were opened, how much you initially borrowed, and what you owe now. In addition, your report lists the amount of your monthly payment and any late payments you’ve made.

Other sections of your credit report show negative information on file beyond your late payments. Collection accounts appear on your credit report and lower your credit score, even if they’re paid off now. Public records for things like bankruptcy, foreclosure, tax liens, and financial judgments against you also show up on your credit report.

Eliminate your Debts

sinbad_kuluckaA debt consolidation service can help you in finding the best consolidation loan according to your needs and current financial circumstances. Companies that offer debt consolidation help can reduce your monthly payments and can also consolidate multiple payments into just one low interest payment every month. This not only helps you in saving considerable money for your household expenses, but also paves a way for a debt free life after a set time period.

These debt consolidation companies have excellent relations with the lenders and can also interact with them on your behalf to get you a lower interest rate, and request the waiver of fines for delayed payments. They can also communicate with the collection agencies on your behalf, and save you from pestering phone calls from them as well as the lenders. Searching for some of the best loans for debt consolidation is not difficult as many of them maintain their websites, and provide details about their services and other details. Getting the best advice depends upon your financial situation and amount of debt that you have.

If you have a good credit score, you can easily get a debt consolidation loan without any collateral. Aside from that, you will also get the loan at low interest and longer repayment term. On the other hand, with bad credit, you will not only have to pay a higher interest rate, but your loan term will also be considerably less than the secured consolidation loan.

Many reputable debt consolidation loans and service providers offer debt management advice only after assessing the situation of their customers. Their main objective is to reduce your debt. Some companies also work with the lenders to get your monthly payments restructured so that you have to pay much lesser amount than you were paying earlier. All in all, you end up not only as a debt free person, but also with an excellent credit history that enables you to get loan at much better interest rate and terms.