If you have run up a huge amount of debt, you will probably be wondering if debt consolidation is worth the effort. And is really as rewarding as promised by the high-decibel advertising of the debt consolidation companies. Since you are under a lot of stress. It is quite likely that you may end up committing mistakes that can make the exercise less productive. A quick look at the top mistakes that you should take care to avoid:
Failing to Be Prepared Before Applying
You should know exactly how many debts you have, the due amounts, and the interest rate applicable on each. Unless the rate of interest on the debt consolidation loan offered to you is significantly less, you will not be able to save substantially on the interest outgo. Also, by knowing the rate of interest applicable to each of your debts. You can choose to consolidate only those that have a higher rate of interest compared to the consolidation loan. You should also be ready with your tax returns, current pay stubs, and proof of all other income.
Not Ensuring That Your Credit Report Is Accurate
Apply for a free copy of your credit report from all the three leading bureaus and make sure that they don’t have any errors that will cause your loan application to get rejected. Attempt to get the errors rectified before applying to the consolidation company. Also, check out the websites of leading debt consolidation companies to see if you qualify; if your credit score is too low, you will either need to identify a company that deals with applicants with poor credit or wait till you are able to improve your credit score. Read debt consolidation reviews to find out what the generally acceptable credit scores are.
Not Establishing the True Cost of the Debt Consolidation Loan
There are many unscrupulous debt consolidation companies that try to convince you that they are offering you a good deal by keeping the monthly payment low but stretch out the tenor. They might also quote you an interest rate and then tag on additional fees and charges under a variety of names. Never be satisfied with just a dollar repayment figure per month; ask for details of the principal and the interest and any other charges that are being levied. The true cost of the loan is reflected in the APR or Annual Percentage Rate; use this to compare loans from different companies. Don’t take the offer rate as being final; negotiating hard will get you a better deal.
There are a lot of companies who are just interested in ripping you off and not helping you to get back on track. Never deal with companies that ask for upfront fees under any guise or try to exert pressure on you to make a quick decision that does not allow you enough time to research them and establish their credentials. Make it a point to read the fine print in the contract in detail and discuss everything that is unclear or ambiguous.