Consolidation loans to avoid – World-Wire
Debt consolidation is a common practice used by people who want to get out of debt. It is simply a way to take out several loans and combine them into one. This means you only have to pay one bill, at a potentially lower interest rate. But not all debt consolidations are right for you.
Here are some consolidation loans to avoid.
Beware of the fine print on balance transfers
One of the most common ways for people to consolidate debt is credit card balance transfers. They have some really good looks, which makes them so appealing to many consumers.
If you have credit card debt, you know what it’s like to be suffocated by interest. Unsecured lines of credit, like credit cards, have higher interest rates because they are not backed by collateral. Balance transfers have the advantage of giving you a low introductory interest rate to help you reduce your debt. Many lenders now offer zero interest rates for up to 18 months on credit card balance transfers.
But like all things, there are finer points that you want to consider carefully when evaluate a balance transfer.
- Know the penalty for missing a payment. Some balance transfer offers expire immediately the first time you don’t pay. This will raise your interest rate and negate any positive effects of the transfer in the first place.
- There will be a charge for the balance transfer, typically in the range of three to five percent of the balance. This can have a huge impact on how much you need to pay back, so understand how the charges will affect you before making a choice.
- Even if you don’t get the penalty APR for missing a payment, your introductory interest rate will eventually run out. Make sure you know your rate once this happens, as it can potentially make the loan unaffordable.
Certainly, credit card balance transfers can be a great way to get out of debt through consolidation. It’s just important that you understand what you’re getting into, know the restrictions, and pay on time.
Do not consolidate if it is not a valid solution to your debt
You don’t want to bother to do something if it isn’t a real solution. This certainly applies when you are looking at various debt consolidation options. If you don’t think a balance transfer will be enough to pay you off, don’t.
People who are unsure of where to look can consider debt consolidation from Bills.com. Here, you’ll find a wide range of consolidation options, ranging from balance transfers to home equity loans. If you can benefit from consolidation, there you will find a solution that works for you.
Make Sure Your Conditions Really Improve With Consolidation
One of the most unfortunate things that can happen with debt consolidation is to go through the process of ending up with a loan with worse terms. That’s why you need to take the time to fully understand how your consolidation plan is going to work before you finalize it. Finding out later that you are in fact in a worse situation can be the thing that puts your debt out of reach.
Watch out for debt consolidation red flags
As with all things personal finance, there are people out there who want to take advantage of people looking for debt consolidation. Being aware of some of the warning signs can help you avoid falling victim to one of these pitfalls.
Here is some red flags to avoid:
- Guarantees to get out of debt. No one can say that you are sure to be successful in beating your debt.
- Their website looks sketchy or isn’t encrypted. Don’t trust any financial organization that doesn’t have a secure website.
- They ask for money before providing services. No legitimate consolidation service will do this except for balance transfer fees or loan origination fees.
Debt consolidation has worked for many people. But not all debt consolidation loans are the same; and debt consolidation might not work for everyone. It is important to consider these factors before signing up for anything that could affect you financially.