Avoid These Debt Consolidation Loan Traps
If you want to secure a lower overall interest rate for your entire debt load and roll then into one convenient loan, debt consolidation is the right loan product for you.
This form of debt refinancing allows you to take out one loan to pay off several debts. It is the best option for people who have many high consumer debts. Many borrowers opt for this type of loan because they only have to pay once every month and they usually enjoy lower interest rates and monthly payments compared to their original debts.
But, if you are not careful, you may end up paying greater debts, higher fees and more interest payments because there are lenders who don’t deliver what they have promised.
So, if you want to enjoy the convenience of a single payment and save on interests and monthly payments, here are some of the debt traps you should avoid when choosing debt consolidation loans:
It is the only way for you to get out of debt.
If you think debt consolidation loan is your gateway to financial freedom, you are wrong. Debt consolidation is only a strategy that can help you address your present debt issues. If used wisely, you can definitely pay off all your debts in the most convenient way, start with a clean slate and conveniently manage your remaining financial resources.
Some people end up with as much or more debt a few years after consolidating their loan because while they consolidate credit card debt into one loan, they max out their newly found available credits. Debt consolidation can create a false sense of financial security. Particularly if you don’t have a debt management strategy. It is true that payments become more manageable than ever. Instead of paying several loans, you only have one debt to take care of. But, the amount of debt is almost the same, only that you are liable to one creditor.
A change of spending and borrowing behavior is also a must. If you want to lose some extra baggage on your finances, you have to adjust not only your borrowing habits, but your spending habits as well. Otherwise, you’’ probably pack the debts back on once you get used to the fact that you are simply paying off one loan.
Is debt consolidation loan bad? No–not at all! In fact, it is a very useful tool for managing and paying off your high consumer debts. But, if you want it to work over the long term, you have to be financially disciplined enough to change your money management habits so that you will not fall into the debt trap again. NSW Mortgage Corp mortgage experts can give you a comprehensive guide on how to consolidate your loan and keep up with the payment terms.
You hired an expensive debt consolidation service
There are many expensive consolidation services offering overnight approval. These services are not really lenders, but middlemen who promise to do things that you can do yourself. Plus you still have to pay them for their consolidation loan services, in the form of upfront fees, monthly fees or cut in your loan’s interest rates. So, if you want to avoid spending more money in the long run, contact the lender itself.
If you are looking into debt consolidation options on your own, it is advisable to talk to the in-house mortgage experts at NSW Mortgage Corp. We could offer you loan options that could roll your high-interest credit card debts to a low-interest consolidation loan, through second mortgage and refinancing. We can also offer you the most affordable payment terms to help you work out your debt problem. Plus, there is no need for you to pay a middle man to do the legwork.
You didn’t take advantage of low-interest refinancing or second mortgage
How could debt consolidation loan work for you? Let’s say your total credit card debt is $50,000 payable at 20% interest rate. You have an outstanding balance on your payday loan which is $10,000, with 10% interest. Plus, you have an outstanding balance of $20,000 on a personal loan at 15% interest.
So, your average interest rate is 20% plus 10% plus 15%, divided by 3, or 15%. If refinancing or second mortgage has an interest rate of 11%, it implies that you will be paying 4% less on the new interest rate.
If your total debt is $80,000, then you can save 4% of 80000 or $3,200.
So, before you jump on the first debt consolidation loan opportunity offered to you, why not give us a call? Our team will give you a no-obligation free session and will help you figure out how much you can pay and save on your debt consolidation.