Debt Consolidation traps

Unfortunately for many consumers, it is far too easy to fall into debt. When you have difficulty paying off your credit card debt on time or even at all, it can really take its toll on you both mentally and financially. Fortunately, you have assistance toward becoming debt free in the form of credit card consolidation. However, you will want to be smart when you seek this service. Here are a few debt consolidation traps to avoid.

Not Acknowledging the Root of the Problem

You may have to admit to yourself that the reason you are in debt in the first place is because you were irresponsible with your finances. You spent far past your means and are now having problems dealing with the aftermath. Or it may have been an emergency expense that you had to use the only available credit- your high interest cards. In most cases, consolidation becomes  necessary when your debt exceeds $10,000. 

Being honest and not ashamed of your predicament is a necessary first step. Coming to terms with why you fell into debt is the next step toward correcting the issue and being able to pay back your creditors. Avoid denying the truth and get help from a debt relief company at your earliest convenience. A credit counselor will help you by creating a debt management plan that is sent to your creditors so that you can be on the road to paying off your debt once and for all.

Not Researching Options Before Consolidating

There are many different ways to go about consolidating your debt. You can choose a debt management program, consolidation, a secured or unsecured loan or even rely on transferring the balance of one credit card to another. There are still more options available than that. You should explore a few ways you can become debt free when you choose a debt relief company for help. However, it’s important to keep in mind that companies do charge a fee for their services that is usually added to the total amount of debt you owe.

Consolidating the Wrong Debts

Sometimes, consumers make the mistake of consolidating all of their debts, including those that already have low interest rates. This can be a trap, especially when combining low interest rate debt with debt that has higher interest rates. Instead, focus on consolidating high interest debt and save the others with lower interest rates to pay off separately.

Choosing the Wrong Debt Relief Company

Unfortunately, there are many unsavory debt relief companies out there. The key to success is finding one that is legitimate and reputable. Avoid any company that claims to offer debt consolidation options that “cure” your debt only a few months, because those types of promises are shady. A legitimate company takes anywhere from 12 to 48 months to successfully settle your debt. Additionally, a company should never charge you fees prior to getting results with their services. Always check a debt relief company’s credentials with the Better Business Bureau and check reviews from consumers who have relied on their services.

Using Your Credit Cards Too Soon

A big trap of consolidation is that you go right back to using your credit cards too soon after receiving help. Don’t make the mistake of believing that everything is suddenly perfect. You can quickly fall back into the same problem and rack up debt again. Instead, remember that you don’t have a red light to spend, spend, spend and that you still have debt. If you have multiple credit cards, close or cut a few of them and only use one or two with low credit limits for emergencies.

Not Having a Plan for the Future

You have to plan for paying off your consolidated debt. If you don’t have such a plan, you will be unprepared in the future and can fall back into your old, negative ways. Take a step back to plan. One of the best ways to do that is to create a budget for your spending and stick to it. Set aside money for groceries and other important purchases and save the rest.

These are some of the most common debt consolidation traps. Be wise and avoid these pitfalls so that you can finally be free of debt and the worry it brings.