Debt Consolidation Tips to Avoid the Pitfalls
Since the great crash of 2008, the average level of debt for consumers in this country has never been higher than it is right now, even exceeding the dangerous level of 2008. Many Americans have realized that spending has simply gone out of control and exceeded their true means, so they are now trying to reign in that spending, and consolidate debts into manageable monthly payments. While this is an admirable course of action, there are pitfalls which must be avoided, even when trying to take the smart financial approach.
Balance Transfer Fees
Transferring your credit card balances to a a single, low-interest card can sometimes save significantly on the monthly budget, but you do have to read the fine print behind these offers in order to avoid making a mistake. Quite often, there are a number of associated fees with these offers, e.g. transfer fees, cash advance fees, overdraft fees, convenience fees, monthly fees, and annual fees, which make them even more costly than it was to pay all your individual balances.
Continuing to use a Transferred Credit Card
The whole point of transferring a credit card balance is to discontinue that account, along with its high interest rate. If you get the balance down to zero and then use the account again, you’ve destroyed the value of debt consolidation.
High Upfront Fees on Consolidation Loans
If a potential debt consolidation lender asks for a high upfront fee, that is likely a sign that his/her company is not really interested in helping you out of debt. The most reputable lenders in this field will charge either no fee or a small one, understanding that this is a big help in steering you away from further indebtedness.
Multiple Transfers of Credit Card Debt
Transferring credit card debt can be very beneficial if done correctly and if done just once. When you have to do it multiple times, it’s a sign that you’re not learning the lessons about credit card debt, and that’s also a red flag to credit bureaus.
Unrealistic Monthly Payments
Sometimes the desire to get out of debt is so great that a person will agree to a debt consolidation loan with unrealistically high monthly payments. It’s much better to re-negotiate, or to seek other solutions than to agree to some kind of loan repayment that is going to continue your financial woes, and possibly worsen them.