Debt Consolidation Made Easy: The Dos and Don’ts

If you are like most folks in the U.S, you are probably paying more than one loan. The Federal Reserve says that average household debt stands at $132,158 as of 2015. Average credit card debt is around $15,675 while mortgages, auto loans, student loans among others follow closely. The level of debt today is higher than it has ever been since the war and the situation is not getting any better. With a slow economy and global uncertainties, more people are expected to fall into debt.

is debt consolidation an optionIf you are repaying multiple debts today, you appreciate how hard this can get. You have to balance your income at a time when the cost of everything else is going up. This makes it easy to default and the consequences are grim. Credit card debts rate highly in the category of defaulted payments and this means a lot of people have bad credit profiles.

To manage your finances when paying multiple debts, debt consolidation comes in handy. The problem is that most people don’t know what this entails and many more have fallen for online scams. Most financial advisors recommended debt consolidation gives you a single repayment, which is easier to manage.

If you are struggling to handle multiple loans, it is time to understand the dos and don’ts of debt consolidation. Here you go:

The Dos of Debt Consolidation

While debt consolidation is a wise financial move, it is important to understand what you can do to get more out of the service. Here are a few tips:

Understand Debt Consolidation

When you start your online search for debt consolidation, you will come across many variations that providers still claim are the same. It is important to understand that debt consolidation involves taking a new unsecured loan to repay all the other debts you had. This means you will be making one single payment to your lender. This is different from debt settlement, debt relief and debt management.

Use a Reputable Debt Consolidation service

The internet has thousands of debt consolidation services and it can get tricky when you are looking for the best. However, you can use debt consolidation reviews to compare different services based on various parameters. These reviews compare the providers based on customer service, interest rates, registration and reliability. You should also check the BBB website for any complaints against a debt consolidation service you want to use.

Ask for Financial Advice

It is true that debt consolidation reduces monthly interest repayments, but does this apply to your case? Every loan is unique and a financial advisor from the loan provider has the expertise to help you understand how your repayments will be affected. Don’t just go for what the adverts tell you, but instead do the math or use a professional to help you understand the implications of the loan product you are buying.

Ask For Recommendations

If you have never used a debt consolidation service before, ask around for recommendations. There are many online scams that lure customers with debt consolidation promises only to start selling debt management or settlement. To avoid such, ask friends and family for recommendations. Remember the loan you buy will take time to pay and you need to use a professional company to avoid unethical collection methods.

Ask Questions

Before approaching any company, ensure you understand what debt consolidation is all about. There are many online resources which attempt to debt consolidation made easy and this is where you should start. Research about the different debt consolidation options and learn the pros and cons of each. When you start interviewing different lenders, ask as many questions as you can to guarantee you get the best service. The more information you have the better the choice you will make.

Check the Terms and Conditions

Most people sign loan contracts without actually reading what they are getting into. This leads to disagreements in future, which can be costly. To avoid this, read through the contract with your loan assistant and make sure you understand every item. For instance, make sure the repayment terms are clear, the penalties are well defined among other items.

 Assess your Finances

This should be the main consideration when you are thinking of debt consolidation. Will you be able to repay the single loan or will you default? Is it necessary to consolidate your debt and how much will you save? Such budgetary considerations will help you make the right decision.

The Don’ts of Debt Consolidation

Don’t Consider Debt Consideration as a final solution

Most people want a quick way out of debt and debt consolidation might seem like the panacea. However, you should understand that debt consolidation does not reduce your debt but rather helps you manage it better. You must remember that the original amount is still due and this calls for prudent financial management.

Don’t go for the Cheapest Service

There are thousands of debt consolidation services and they have enticing offers to lure customers. However, don’t always go for the cheapest services because they are not always the best.  You should check for the company’s track record and reputation before using their services. You should use top debt consolidation reviews to find the best service in terms of interest rates, reliability and customer service.

Don’t Rush

Just because you have seen an advert promising lower interest rates doesn’t mean you should jump at it. In fact, like any other financial decision, you need to take your time to avoid making a mistake. Take time to research about debt consolidation and check whether you are a good candidate for the service. You should also take more time to assess the benefits you will enjoy by using such services.

Debt consolidation is a prudent financial choice. If you are struggling with multiple debts at the moment, it is advisable to go for debt consolidation for lower interest rates and peace of mind. Managing a single payment is easier and you will find it less stressful to plan your income.