There are many solutions to your debt problems, especially when you are experiencing financial crises. Lenders have come up with many ways to help people clear off their loans, but how do you know which method will work best for you? Debt consolidation is very useful if you have multiple credits from different accounts. If you are considering taking on a consolidation loan, here is why you should go through with the plan
Your creditors may not be pleased with your consolidation plan
Debt consolidation works by combining your outstanding balances from all your credit account into one large account. This way, you can make one monthly payment instead of several payments. When consolidating your debts, you have free will to choose which debts to incorporate and which ones you do not want to. When your debt is pushed into one large account, creditors will take reduced payments and lower interest rates. Unsatisfied creditors may sue you for violating the contract you signed when you received their loan
There will be a slight increase in debt.
Consolidation companies do not offer their services for free. You are charged several thousands to consolidate your debts. Some companies may impose hidden fees on their services. A new contract gives the company the right to collect their fee first when you make the monthly payments. If you do not pay enough on the monthly payments, your creditors may stop receiving your payments several times. Your creditors will attach your paycheck and assets, which will increase the debt loan
You have no say over the payments
With a debt consolidation loan, you have no right to control how the payments are prioritized. The consolidators will decide whether to make full or partial payments on your credit accounts. The issues id, if you are a few payments away and the deadline is almost due you will start losing some points on your credit card.
Consequences in your work place
Creditors can obtain information about your employment from your court and get in touch with your employer. You may lose your job for having dues loan and not making the payments on time. If you do not lose your job, you will lose a promotion opportunity due to poor financial management.
Credit card balance transfers are expensive
When you transfer all your debt into one account, they all face a constant low interest rate for a while. After a while, the interest rates begin to rise and become more than you could have paid off in ingle accounts. If you use the debt consolidation loan for purchases, you risk reducing you loan cost. If you pay minimum payments on your credit, you can stay in debt for a couple of years.
Your home equity is used as collateral
When you take up the loan, the debt consolidation company uses your home equity as collateral. When you have an outstanding loan, and fail to make the payments on time, the company sells your home equity to complete your repayments. It is a great risk to hand out one of your biggest and most expensive assets as collateral.
If you have a poor credit score, low income or you are going through financial crises, dept consolidation may be the only solution to your problems. Ensure you make all your repayments on time to avoid further penalties.