Debt consolidation loans are great, but only if you know what you are doing. We have assembled a list of the five most common debt consolidation loan mistakes, because being forewarned is being forearmed (which is a fancy way of saying keep an eye out for these common mistakes, and your debt consolidation loan will be a positive experience)!
We are telling you these common debt consolidation loan mistakes for one simple reason:
If we don't tell you, no-one else will.
Your lender wants to give you the loan; they are worried about themselves, not you.
If you are using the services of a Debt Consolidation Service they are also interested in earning their commission, so they have no incentive to look out for your best interests. Here then are the top five debt consolidation loan mistakes:
Mistake #1: Not being prepared before you apply for your debt consolidation loan
This is obvious. If you were building a house you would start by making a plan, but for some reason people don't prepare before getting a debt consolidation loan.
Preparing means deciding how much money you need to borrow, and gathering evidence to support that amount. Before you meet with your lender, gather up your most recent tax return and your recent pay stubs (as proof of what you earn), and gather proof of all of your debts. Being prepared will make it easier for the lender to give you the loan.
Mistake #2: Not checking your credit report before you apply for your debt consolidation loan
Your credit report lists all of your debts. If you have too much debt, you won't get the loan you are requesting. If there are errors on your credit report, you may not qualify for the loan. The solution is simple. Contact the credit reporting agencies and get a copy of your credit report so that you know what's on it, and fix any errors before you apply for your debt consolidation loan.
Mistake #3: Not calculating the true cost of your debt consolidation loan
Many lenders will approve you for the loan, and then tell you the payment will only be $300 per month. But what does that mean? How much are you paying for interest, and for other administrative charges, like insurance and brokerage fees. As for a detailed breakdown of all costs. If they seem high, ask for them to be reduced before you get the loan, or don't sign for the loan.
Mistake #4: Not consolidating all high interest debts
A debt consolidation loan works best when you use it to consolidate all of your debts. Many people only try to consolidate one or two of their credit cards, instead of all of them, and as a result are left with a loan payment, and payments on the credit cards they didn't consolidate. If you are getting a consolidation loan, consolidate all debts that you are paying that carry an interest rate higher than what you will be paying on your debt consolidation loan.
Mistake #5: Not destroying your credit cards after you get your debt consolidation loan
This may be the biggest and most common mistake of all. You spend too much, so owe money on credit cards. You get a Credit Card Debt Consolidation Loan to pay off your credit cards, but then instead of stopping using your credit cards, you keep spending on them! As a result you end up not only with the payments on your debt consolidation loan, but also on your credit cards. To avoid this mistake, when you get a debt consolidation loan keep one credit card for day to day use, and then cut up and cancel all the rest to help you avoid temptation.
You can avoid these common mistakes; if you do, your debt consolidation loan will be a great new beginning.