What to avoid when choosing a debt consolidation program

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What to avoid when choosing a debt consolidation program Debt Consolidation VIEW BEST DEBT CONSOLIDATION
By Editorial Team | 24th January 2019
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Debt consolidation is often the first step towards fiscal freedom. But despite the best efforts and variety of plans, consumers are not able to consolidate debt. Just choosing a good plan will not help. Consider the pros and cons of the debt consolidation program that you decide on. Here are some common mistakes that you must avoid for best results.

1. Choosing illegitimate plans

There are many debt consolidation programs out there, from Accredited Debt Relief to CuraDebt. However, when you’re deciding, be very careful about potential scams. Before weighing on the merits of the plan, check if the specific program is a genuine and legitimate one. Are you borrowing from a legitimate bank or financial institution? Make sure that the company that you are approaching has a proper track record. If possible, look for others who may have used a consolidation program from the same firm. It is best to avoid small institutions. Go for big names with a considerably big user base. This improves the chances of a plan being relatively effective.

2. Skimming through details

You can consolidate credit debt or take up personal loans for debt consolidation. But don’t be in a rush to finalize a plan. It is a good idea to undertake thorough research before you sign on the dotted lines. Carefully consider the various plans that are available. Also, pay attention to the rate of interest. Sometimes companies may make a plan attractive by advertising low rates, but there is a possibility that the tenure is really long. So consider all details.

Closeup on notebook over wood table background, focus on wooden blocks with letters making Consolidate Debt words. Business concept image. Laptop, glasses, pen and mobile phone in defocused background
Considering your debt consolidation options carefully is essential (Picture: iStock by Getty)
3. Going for any plan you read about

Making a comparison is another crucial element when you are researching for the best debt consolidation companies. Debt consolidation is worth it only if you are able to reduce your liabilities and interest payment. It is a good idea to carefully contrast and compare the features of the various programs. Consider the pros and cons of various debt consolidation programs that are available. Don’t let your fear of uncertainty or numbers overwhelm you.

4. Getting back into the debt trap

When you pile all your debt as one loan on a single card, it immediately frees up a huge amount of credit in other places. That is a definite temptation, but this is what you must avoid. Make a monthly budget and stick to it. Spend only what you can afford. In many ways, this is the starting point of incorporating fiscal discipline in your day to day expenses. This trains you to recognize your limits and make appropriate cuts.

5. Following others

When you are shortlisting the best debt consolidation companies, make sure you don’t base your choice just on someone else’s recommendation. Following what others have done can be really detrimental when you are looking at reducing your debt. In reality, debt consolidation is a multi-pronged process. It works when you systematically address your financial problems. This is why it isn’t advisable to paint everyone’s problems with the same brush. Don’t go for a plan because a relative or a friend opted for it. Look into the details and decide if it addresses your problems. Decide on a debt consolidation program based on how it solves your particular problems and reduces your liabilities.

Happy debt free woman in glasses holding a credit card cut in two pieces
Debt consolidation can be an incredibly liberating process (Picture: iStock by Getty)
6. Choosing plans with an ambitious monthly payment

Choose a plan that works for you. So both in terms of monthly payment and the tenure, it should be customized to your needs. Think about your current spending and calculate how they might escalate in the future. Let’s say you need to pay X amount every month to pay off your debt in 5 years. But can you afford the same X amount after a year too? Often people take up plans with huge payments in an effort to pay off the debt fast. But if they do not have a sustainable income to support it, they may miss a monthly payment. There could also be emergencies when they end up spending a lot of money somewhere else. If the monthly payment is huge, this may again impact the payment cycle.  This will affect their credit score adversely. Choose a sustainable payment option that you can manage even in an emergency. 

Conclusion

Caution is crucial for consolidation. Remember debt consolidation helps your credit only if you exercise discipline. The lure of spending is great but remember it is necessary to curb it. Consolidation is significant but how you do it is equally important. That sets the tone for your long-term financial self-sufficiency.

Written by
Editorial Team
Our Editorial Team is constantly watching for new and exciting services to report on. They aim to bring balanced, honest reviews to the site to give you the best comparisons and ensure you have the knowledge to choose the product right for you. Read more.
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