Debt Consolidations Tips
A lot of people go into debt consolidations loans thinking it will solve all their credit problems. But while it does help, it's not a surefire solution. In fact, a badly chosen consolidation loan can leave you with even more credit that you started out with. To help you avoid common pitfalls, here's a quick guide to debt consolidations and what to watch out for when looking for lenders.
Pros and cons
Consolidation only offers one certain benefit: the convenience of servicing only one loan and one creditor. Other benefits such as lower interest rates, shorter terms, and lower principal all depend upon your lender-and remember, not all of them are willing to give you a good deal. So shop around for good lenders, but don't expect them all to solve your debt problems.
The major drawback of debt consolidations is that the fees (apart from the interest) tend to be higher. This is what the typical guide to debt consolidations often overlooks: interest rates may be lower, but the application, maintenance, and closing fees can be staggering.
What to watch out for
- Scam brokers. Some brokers offer to secure the loan for you and course your payments through them, but they never pass it on to the lender-in fact, there may not be a lender in the first place. Remember, a broker's job is to find you a lender, not to pay your bills for you.
- Extremely high interest. Some lenders argue that debt consolidations loans are high-risk by nature, which justifies high interest. It may be partly true, but there are lots of lenders who are easy on the fees and offer good loan terms.
- Upfront fees. No legitimate lender will charge you just for securing an application form or making an inquiry. You will only pay once you've started the application process; that is, when you've filled out your form, submitted your paperwork, and signed a contract stating all the fees involved.
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