Many people choose to consolidate their debts, to end the cycle of debt that they are in. Consolidating your debt can result in lower monthly payments so it is a good option for those who are serious about eliminating their debts. Yet there are a few common pitfalls that consumers often run into when it comes to debt consolidation. Here is 3 common pitfalls that consumers run into often enough
When do a balance transfer to achieve debt consolidation
Credit card balance transfers can provide the means to lower your interest and go down to just one bill per month. The mistake that many people make is assuming that this transfer is immediate, when in fact it often takes up to two weeks to achieve. They fail to make the minimum payment on their credit cards, then get slammed with not only late fees and penalties, but also take a ding to their credit report and credit score. Even if you are doing a balance transfer, if you fail to make the minimum payment, you will be reported 30 days late, which is a serious ding to your credit. To avoid this problem, make at least the minimum payment on your credit cards. After your balance transfer goes through you should still log into your old credit cards websites for up to a month to check for any surprise balances that were not showing or fees. If any amount other than zero shows up you will need to make the payment or face late fees and a damaged credit report.
Applying for multiple loans at the same time
Many people try and rate shop by applying for multiple loans over the course of a few weeks. While you get less of a ding if you apply for most of them within a few days of one another, you still receive a credit ding for all of these hard inquiries. So trying to be a smart borrower by shopping for the best rate can harm your credit report due to to many inquires. To avoid this problem you can look up your credit score online and pull your credit reports via annualcreditreport.com and look for any mistakes that may be effecting your credit score. Once you are armed with your credit score you can begin to look for lenders that fit your credit criteria and credit score range. Some lenders websites will list their credit requirements, and for those who do not you can simply call or email them, explaining that you do not want a hard inquiry if you can avoid it. Once you know all of the various lenders requirements, you can then apply for the right loan for you, all without having to damage your credit score. Do remember to take into account the APR and not just the interest rate. The APR will include the fees, while the interest rate will not do so. Every loan has fees attached to it, and consolidation loans often come with fees.
Falling for a scam
There are a ton of debt consolidation scams online and in the real world. From fake online lenders to debt consolidation companies the scams run deep and wide online. The fake loans may be asking for a fee upfront, and your important information like your social security number, date of birth, and address for identity theft purposes. Scam and fake debt consolidation companies will often ask for several months of payment in advance, and when it is time to use their services, they will be long gone with your money. Often times we run into deals that seem to good to be true, and as the old saying goes if it seems to good to be true it probably is. Only go through reputable lenders and avoid fly by night companies. Check on businesses with the Better Business Bureau and do searches online with the names “scam” and “complaint” along with their business name. If lenders are required to be registered in your state you can check on their status by contacting your states Attorney General. If you discover your potential lender is besieged with complaints, it is time to take your business elsewhere.