Debt consolidation is one of the best ways to get out of debt. However, you need to choose the right debt consolidation company and also decide which of your debts you should consolidate. Some debt consolidation programs have loopholes that create more problems than solutions. Many debt-stricken people often make mistakes when consolidating debt and eventually find themselves in more trouble than they already were. This implies that you need to be aware of the common mistakes made when consolidating debt and how to avoid them
Not Exploring Other Alternatives
While consolidating debt is a good way to clear your debts, it isn’t for everyone. You should look at various options and choose the best one. If you decide to choose only one option without looking at others, you might miss out on other options that would have been better than debt consolidation. When you choose the debt consolidation option, you will only be moving your debts from one creditor to another. However, if you choose the strategy called debt settlement, you will end up paying a small percentage of the total amount you owe. If you are not sure which option is good for your specific situation, talk to a financial expert and explain your situation. The financial expert will help you choose the option that best suits your needs.
Not all debt can be consolidated
It’s important to understand that not all debts can be consolidated. In most cases, the debts that can be consolidated are unsecured debts. If you were to take out a loan against your home, your lender would probably be unwilling to agree to new loan terms because it knows it could foreclose on your house if you default on your payments. If you are in such a situation, debt consolidation will not work for you. You might try refinancing your loans instead. On the other hand, if most of your debts are unsecured debts such as credit card debt, it will be easier to consolidate them.
Not having a plan
Many people approach debt settlement agencies or debt consolidation companies without any plan. Before you approach these companies, you should at the very least have a detailed plan on how you intend to get out of debt. You should know how much you owe, your last payment date, the interest rates on your current loans and what you expect from the agencies.
Choosing the first agency you come across
Many people make the mistake of working with the first debt consolidation company they come across. This is wrong because there might be other companies out there offering similar services but for less money. Shop around and compare the rates of different companies. If you are not familiar with any debt consolidation company, you might ask your friends and family to recommend a company that they have worked with.
Not checking your credit reports
Your credit report contains details of your financial situation. It is for this reason that you need to first check out your credit report before approaching a debt consolidation company. The credit report will help you identify the areas you need to work on.
Signing loan documents without first reading them
When loan documents are presented to customers, most of them sign without reading them. This is a bad idea because those documents contain the terms and conditions of the loan, the fee charged as well as the interest rates applicable. Before signing any document especially one that involves your finances, be sure to read it carefully so you will know what you are getting into.
