Common Traps Of Debt Consolidation And Ways To Avoid Them

You may be in a situation where you are entirely drowned in debt. Debt consolidation can appear to you as the gift from God, at that moment. But, there are few traps that you must be careful of, when you are using the debt consolidation plan.

Here are some ways to avoid the debt consolidation trap.

Identify The Root Of The Problem

When you are in a debt ridden situation, you should identify the root cause of the problem. Often, you need the debt consolidation, because your expenditure has gone out of your hands and the repercussions cannot be managed. You should talk with the counselors to find the perfect solution. As the debts did not appear in one day, the solution will also not come overnight. You are required to change your manner of expenditure and need to make some sacrifices.

Research Options Before Consolidation

Most of the times, you do not look out for other options besides the debt consolidation. This is a very wrong step as you need to research properly before taking the final decision on debt consolidation. Debt management and debt settlements are the other plans. Debt management plays the role of the agreement between the creditors, you and the credit counseling agencies. The credit counselors will work with your creditors for consolidating the entire loan amount at lower interest rates. On the other hand, debt settlement is the process of paying the lump sum amount, which is less than what you actually owe.

Consolidate The Right Debts

There are many cases, when the consumers consolidate their entire debts. You should notice the interest rates of the debts and specifically consolidate the high interest rates. When you are clubbing the debts with the lower and the higher interest rates into a single payment scheme, you are actually paying higher, with the debt consolidation plan.

Use Credit Cards Wisely

When you are under a debt consolidation plan, you are not actually staying in the debt free situation. So, it will be wrong, if you start using your credit cards, just like you used to. You should remember that you are not totally carrying a clean slate and still have some debts outstanding. So, the credit card usage should be reduced as much as possible.

Choose Right Professional

You should select the right professionals for dealing with your finances. You should check all the charges before getting into an agreement with the professional agency. The debt settlement firms cannot legally charge any fees from you, without obtaining any results. You can consider the Business Bureau, reviews and the company websites before selecting the professional organization.

Plan And Move

Try to plan for moving forward. You should talk with your financial adviser, credit counselor and your family for creating the right budget that balances your income and expenses.

Make sure your budget includes keeping aside some money for any future emergencies like, job losses or medical emergencies. You can also save for seasonal expenses like holidays, Christmas or wedding gifts, etc.

David Samuel is a financial expert who provides tips on debt consolidation. In this article , he talks about the various traps of the consolidation and the ways of avoiding them.