What to keep in mind before opting for debt consolidation

Sometimes when you’re feeling the brunt of unpaid finance bills and credit card payments, opting for a debt consolidation deal might seem like the best remedy.

Debt consolidation means consolidating one’s various peripheral debts such as credit card and loan payments into one monthly payment. Industry experts say that while this process can bring you relief by simplifying or reducing your stock of monthly payments, however, if you have many credit card accounts, it is essential to note that a loan of Debt consolidation does not remove one’s outstanding credit or debt. .

Rohit Garg, co-founder and CEO of SmartCoin, says, “The process of refinancing debt allows you to take out one loan to pay off many. The process can help obtain a loan at a relatively low interest rate to pay off any accumulated debt and extend the repayment service of a single debt or loan.

Here are some common mistakes people make when applying for a debt consolidation loan;

Experts say that many people who apply for a debt consolidation loan don’t fully understand the seriousness of the situation. While choosing to consolidate your debt into one lump sum, one must recognize the seriousness of the circumstances and take a close look at how they came to such a guess in the first place.

Garg says, “Sometimes people often fail to weigh all the options available. There are several alternatives that people can choose from as there is no standardized method for debt consolidation. He adds, “People can choose from a wide range of options such as transferring all credit cards to one, opening a new line of credit, or even taking out a secured/unsecured loan from the bank.”

Additionally, people often fail to limit their access to credit. Debt consolidation, if not done properly, can turn out to be a big gamble. Limiting your credit finances is essential, therefore closing multiple cards at once can cause your credit score to drop.

Industry experts say that many people don’t have a real plan to pay off debt consolidation. Garg says, “A consolidated loan can take a long time to cover, especially if one is making minimum monthly payments. It is important to have a budget dedicated to repaying debts and to allocate funds to it at regular intervals. Therefore, if you aspire to be debt-free quickly, you can also transfer additional bonuses, tax refunds, cash gifts or any other kind of compensation to the debt account.