While debt consolidation loans can help you pay down debt faster, grant you financial stability, and improve your credit score, it doesn’t always work for everyone. Here are seven of the most common mistakes people make when getting debt consolidation loans.
1. No New Budget
Although debt consolidation loans are meant to take high expenses and turn them into one manageable payment, the process doesn’t work unless you create a new budget to comfortably accommodate the consolidation loan. Missing a payment can possibly change the terms and conditions of your loan.
2. Delay Payoff
People often make the mistake of only making the minimum payment after the minimum payment has decreased. When you delay paying off the loan in favor of a smaller payment, over time you will pay more in interest and fees.
3. Close All Accounts
It makes sense to close all of the accounts once the balances are paid; however, zero balances have a positive impact on your credit report. Plus keeping one or two credit cards tucked away is a good idea in case of an emergency.
4. High Interest Rate Loan
Debt consolidation loans only make sense if they truly offer a lower interest rate with reasonable and manageable repayment terms.
5. Poor Debt Prioritization
Credit cards and/or loans with high interest rates should be consolidated only into lower interest rate programs so that you save money on interest and fees. If you are unable to cover all of your expenses with a debt consolidation loan, try to zero out the most expensive debt you have while you are saving money with the consolidation loan.
6. Keep Spending
A debt consolidation loan won’t help if you don’t manage your spending habits. You’ll either default on the loan or fall into the same situation again later.
7. Don’t Ask for Help
There are people who specialize in debt consolidation loans: successful financial solutions solve specific problems. Don’t be afraid to ask for help.
Contact Rushview Commercial Funding with any questions you may have about debt consolidation loans. We are here to help.