Debt consolidation dangers in 2016
With Christmas out of the way and the new year in full swing, we’re already thinking about summer holidays and where to spend them. Throw in the costs of every day living, and it all starts to add up.
It isn’t ideal, but for many of us it helps to borrow a little in order to get our finances in order. When the debts start to pile up, that’s when debt consolidation becomes an option for some people. Debt consolidation can work, and allow you to put your finances back in order by following a steady payment schedule. There are, however, a number of dangers that come with this type of financial product, and here we run through a few of them.
What are you paying?
Maybe the most important thing to remember about debt consolidation is that it isn’t free. Make sure you know the package you are signing up for inside and out. There are some debt consolidation providers that prey on the vulnerable, charging massive monthly fees. Make sure you go with a provider that offers sound financial advice and a clear payment schedule that you are comfortable with.
Interest rates are the other important factor when it comes to what you will be paying – shop around in order to get the best deal. Agreeing to sky-high interest rates can simply put you back where you started in the long run.
Don’t get back into bad habits
The ultimate goal of signing up for a debt consolidation package is to clear your debts, not add to them. This will naturally take a certain amount of discipline when it comes to your own spending. Remember that a debt consolidation loan can make a difference, but it is down to you when it comes to reigning in your outlays. Look at why you got into debt in the first place, be honest with yourself, and make some changes.
Which debt is suitable to consolidate?
There are undoubtedly some forms of debt that are well suited to being consolidated in order to clear them. Credit cards, for instance, have high interest rates that can cripple your cash flow if you are not careful. Some debts, however, such as student loans or vehicle finance packages, have low interest rates that can mean you will benefit more by sticking with the existing payment schedule for them.
The key thing when it comes to debt consolidation loans is to do your research before you sign up for anything. You should be clear that there are two main types of loan – unsecured and secured. Unsecured debt consolidation loans mean that the company you have signed with has no claim to any of your financial assets should you miss any payments. With secured loans, a package is actually secured against a financial asset, your home for instance. Failure to meet payments could mean your property is at risk.
So use debt consolidation loans carefully, and remember they can only help your financial situation if you are determined to help yourself.