4 Risks You Should Consider Before Going for Credit Card Debt Consolidation
- By adam_mhrez
- On 27/09/2018
You have to be proactive and really very smart when money is involved. Credit card debt consolidation is most likely to be good for your financial status if you act wisely. However, there are some risks you have to consider before going for any debt consolidation programs.
You Might Have To Pay More Interest
This is the biggest risk associated with a debt management program. In case the loan you are consolidating has a longer loan term, chances are you will have to pay more interest if there is some other loan kept as is. Credit card debt consolidation lowers the monthly payments. Some people, on the other hand, choose to pay the same amount and reap the benefits of a lower interest rate. Making reduced monthly payments might not be ideal as you will require more time to pay off the debt. And at the moment you will be debt-free, you will have already paid higher charges.
It Will Temporarily Hit Your Credit
You rightly think that paying off debt with this temporary hit to the credit is a winning situation. Still, it is a risk. Every lender will go through your credit report before you take a home equity loan, new credit card or any other loan for debt consolidation. Applying for a new form of credit will affect your credit score in two ways. First of all, it is a hard inquiry and it will hit your credit score. This new credit inquiry will be there on the credit report for a year. You will decrease the average age of your credit by taking a new loan. This will eventually reduce your credit score.
Don’t let this risk discourage you. Only take calculated decisions.
You Might Have To Pay Debt Relief Fee
Many consolidation companies charge a high fee for servicing your debt. So not reading reviews of the lender can be a big mistake.
The Underlying Issue Might Still Remain Unsolved
Taking a loan for paying off existing debts is not the solution. You are not fixing the actual problem. Debts are unavoidable in case of medical emergency and some other emergencies. However, debts due to overspending can be easily avoided. You are simply taking a loan to repay another loan. So, you have to do something with your spending habits if the debt is due to overspending.
Better explain your situation to an expert in credit card debt consolidation before making any decision. So these are the four risks associated to working with a debt consolidation program. So the next time you think of choosing one, make sure you take guidance of professionals or gain some knowledge first.