Avoiding The Risks of Debt Consolidation

July 29, 2022

It can seem like a no-brainer, the opportunity to roll all your high-interest debts -- with their various balances and due dates -- into a single loan with a fixed due date and payment. It’s called debt consolidation, and while the financial strategy has helped scores of people like you, there are factors you should first consider. If your spending isn’t controlled, for instance, the whole process would be for naught. With that said, here’s how you can go about avoiding the risks of debt consolidation.

What is Debt Consolidation?

This is the process of merging multiple debts into a single obligation. Rather than making separate monthly payments to each creditor – typically credit card issuers – you make just one payment to one lender, hopefully at a better rate. Debt consolidation can save you time and money.

Debt consolidation can be in the form of a 0%-balance transfer card, onto which you can shift your high-interest debt. The proviso is that you must be able to pay the card off before the promotional rate expires – usually between 12 and 21 months – and the rate shoots back up. You also must have a strong enough credit score to qualify for such a card.

If you don’t want to risk losing your house by using it as collateral for debt consolidation, you may want to consider a personal loan with a fixed monthly payment and low fixed interest rate or IVA Advice.

Who is a Good Candidate for Debt Consolidation?

Debt consolidation may be a good strategy for anyone who is grappling with high-interest liabilities and multiple balances. But again, one needn’t bother if what got them in this condition – excessive spending – hasn’t been reigned in.

You also may be a good debt consolidation candidate if you:

  • Have established a plan to emerge from debt and stay there
  • Have good or excellent credit that will qualify you for a loan with the best terms and interest rate
  • Can barely keep track of all the bills coming in
  • Have medical bills you wish to consolidate and need time to erase them

What Could Go Wrong with Debt Consolidation?

The main problem goes back to spending and the opportunity to pile up even more debt. If you use a loan to consolidate $25,000 in high-interest debt, for example, but you continue to use your plastic, you may end up having to not only pay off the loan, but a growing mound of new debt as well.

So, in this way, while debt consolidation offers a way to streamline your debts, you haven’t done anything about habits that could leave you in even worse shape.

The latest California debt statistics should give you pause. Residents of the Golden State owe an average of $3,300 in credit card obligations, which is higher than the national average. Further, according to Experian, while the average credit card utilization in this country last year was 25%, it was 76% among California residents seeking debt relief. Moreover, the average California household has north of $20,000 more debt than the average U.S. household. For such households, debt consolidation and debt settlement are among remedial options.

Another possible issue bears repeating. Yes, you can use your home equity to consolidate debt. Such loans usually have low interest rates since your home is used as collateral, and monthly payments are fixed. However, you’re in trouble if you can’t resist spending after all your debts are cleared (yes, it does come back to your spending). You very well could lose your home.

With a balance transfer card, if you aren’t serious about repaying your debt and fork over as much as possible, all you have is a fleeting respite from a higher interest rate. You’re back where you began once the promotional period is over.

The bottom line is that, to avoid the risks of debt consolidation, you must have a different mindset about debt and how and where you spend. Sure, you have options to improve your situation, particularly if you have good credit, but you must do whatever you can to avoid more debt. In addition, you might want to also know what are the best credit repair companies to give you tips on how to keep you away from more debt.

Carlos Diaz
I believe in making the impossible possible because there’s no fun in giving up. Travel, design, fashion and current trends in the field of industrial construction are topics that I enjoy writing about.

Leave a Reply

Your email address will not be published. Required fields are marked *

Related Posts
February 21, 2024
Houston's Housing Horizon: Trends and Predictions for Homebuyers and Investors

The Houston real estate market is a canvas of opportunity, diversity, and potential. As one of the most dynamic and evolving markets in the United States, it offers a unique blend of challenges and rewards for homebuyers and investors. This article delves into the current trends shaping Houston's housing landscape and offers predictions that could […]

Read More
February 21, 2024
How to Buy Legitimate Amazon AWS Accounts Online

  Buying an Amazon AWS account may be tricky if you don't know where to look. There are many websites out there claiming to promote AWS bills, however, how do you already know they are valid? In this guide, I'll walk you through the manner of competently and securely buying actual AWS bills online. We'll […]

Read More
February 21, 2024
How to Build a Shed in Your Backyard?

Even if you don't believe you need one, you'll want a storage shed since your house never has enough storage. The project does not have to be costly. Building a backyard storage shed yourself yields a better result than hiring a contractor or labor. Why Buy a Storage Shed? Tool, garden, and storage sheds. No […]

Read More
Welcome to Urban Splatter, the blog about eccentric luxury real estate and celebrity houses for the inquisitive fans interested in lifestyle and design. Also find the latest architecture, construction, home improvement and travel posts.
© 2022 UrbanSplatter.com, All Rights Reserved.
linkedin facebook pinterest youtube rss twitter instagram facebook-blank rss-blank linkedin-blank pinterest youtube twitter instagram