Debt consolidation is a common practice used by people who want to get out of debt. It’s simply a way of taking several loans and combining them into one. This means you only have to pay one bill, at a potentially lower interest rate. But not all debt consolidation is right for you.
Here are some consolidation loans to avoid.
Beware of the Fine Print on Balance Transfers
Credit card balance transfers are one of the most common ways for people to consolidate their debt. There are some pretty great aspects about them, which is what makes them so appealing to many consumers.
If you have credit card debt, you know what it feels like to be suffocated by interest. Unsecured lines of credit, such as credit cards, come with higher rates of interest because they’re not backed up by collateral. Balance transfers come with a great perk of giving you a low introductory interest rate to help you get ahead on your debt. Many lenders are now offering zero-percent interest for as long as 18 months on credit card balance transfers.
But like all things, there are some finer points you want to carefully examine when evaluating a balance transfer.
- Know the penalty for missing a payment. Some balance transfer offers immediately expire the first time you don’t pay. This will make your interest rate go way up and nullify any positive effect of doing the transfer in the first place.
- The balance transfer will come with fees, typically in the range of three to five percent of the balance. This can have a sizable impact on the amount you need to repay, so understand how the fees will affect you before making a choice.
- Even if you don’t get the penalty APR for missing a payment, your introductory interest rate will run out eventually. Make sure you know what your rate will be once that happens, as this can potentially make the loan unaffordable.
Granted, credit card balance transfers can be a great way to get out of debt through consolidation. It’s just important you understand what you’re getting into, know the restrictions, and pay on time.
Don’t Consolidate if It’s Not a Valid Solution to Your Debt
You don’t want to go through the trouble of doing something if it’s not a real solution. This certainly applies when you’re looking at various debt consolidation options. If you don’t actually think a balance transfer will be enough to get you on top of your debt, don’t do it.
People who aren’t entirely sure where to look can consider debt consolidation from Bills.com. Here, you’ll find a wide array of consolidation options, ranging from balance transfers to home equity loans. If you can benefit from consolidation, you’ll find a solution that works for you there.
Make Sure Your Terms Actually Improve Through Consolidation
One of the most unfortunate things that can happen with debt consolidation is going through the process only to end up with a loan with worse terms. This is why you need to take the time to fully understand how your consolidation plan is going to work before finalizing it. Finding out later that you’re actually in a worse position can be the thing that puts your debt out of reach.
Look Out for Debt Consolidation Red Flags
Like with anything related to personal finances, there are people out there who want to take advantage of people looking for debt consolidation. Being aware of some of the warning signs can help you avoid falling victim to one of these traps.
Here are some red flags to avoid:
- Guarantees about getting out of debt. No one can say you’re sure to succeed in beating your debt.
- Their website seems sketchy or isn’t encrypted. Don’t trust any financial organization that doesn’t have a secure website.
- They ask for money before providing services. No legitimate consolidation service will do this, other than for balance transfer fees or loan origination costs.
Debt consolidation has worked for many people. But not all debt consolidation loans are the same; and debt consolidation might not work for everyone. It’s important to consider these factors before signing up for anything that could affect you financially.
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