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Dos and Don’ts of Debt Consolidation for Achieving Freedom from Your Nagging Debts

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Americans seem to be in love with the idea of being in debt. They certainly like their credit. It had been forecasted that total consumer debt would be reaching $4 trillion by 2018 as per Federal Reserve Data Analysis. The most concerning issue is that even though income is increasing, consumers in the United States seem to be borrowing more money even more frequently. Moreover, Americans have paid banks over $110 billion in terms of credit card interest, as well as, fees in the year 2018. This is a 13 percent increase from the previous year’s $98 billion spending on interest.

The average American household owes $137,063, according to the statistics provided by the Federal Reserve, with most of it coming from high-interest credit cards, mortgages, and costly lines of credit from branded jewelry companies and some other operations. It is pretty evident that it is quite easy to accumulate high balances which later on become really difficult rather impossible to pay off. Many of you are struggling with an ever-mounting debt burden that could be the result of unbridled spending or unanticipated but necessary expenses such as medical bills and repairs.

It is quite difficult to get a firm grip on debt and it is necessary to curb your spending if you wish to get on top of your debts. If you wish to get rid of spiraling debts, you must first of all, pay off your outstanding debts. One most effective and time-tested technique of paying off the entire amount you owe is debt consolidation that involves rolling multiple debts into a single debt with a lower rate of interest and a single monthly repayment.

As per forbes, “Essentially, you take out a personal loan that has a lower interest rate than your higher-interest debt. You then use that new loan to pay off the other, higher-interest debts — saving hundreds, possibly thousands of dollars with the new rate.” Debt consolidation is a simple concept but there are certain things you need to know and keep in mind. Let us explore the debt consolidation dos and don’ts.

Do a Comparative Evaluation

It is best to shop around as your main intention is to obtain a personal loan with a relatively lower rate of interest. So do ample research. However, you need to realize that interest rates to a certain extent are reliant on credit scores. In this context, you must understand that a higher credit score would imply that you would be automatically getting a lower interest rate.

However, factors impacting your rate of interest would vary from one company to another. Interest rates could be higher because of a host of other factors. It is best to look for the rate that best suits your affordability. Browse reputed sites such as nationaldebtrelief.com for perfect debt relief solutions.

Don’t Put in Application for Multiple Loans: Stick to Just One

You must refrain from putting in the application for a loan more than just once because your credit score would be adversely impacted if you put in multiple applications requesting a loan. You must necessarily avoid hard inquiries but you are free to make several soft inquiries.

Companies are coming up with an effective array of tools including tools and apps for scrutinizing your rate.  This would be letting potential borrowers thoroughly understand their financial commitments and loan terms such as the ‘Monthly Payments Calculator’.

Do Maintain Valid Credit Cards

Most people destroy their credit cards as they do not wish to risk giving in to the temptation of using the cards again and amassing heaps of debts all over again. However, it is a good idea to keep at least, some of the credit cards open. Although it may seem counterintuitive, when you have successfully paid off your entire credit card debt with a debt consolidation loan, you may still require these credit cards to be active.

Do not forget that credit scores are to some extent, calculated on the basis of the amount of debt one can potentially use as opposed to what he actually uses, hence, the higher your potential balance, the higher would be your credit score.

However, you need to keep in mind that this would actually work in case of cards which have already been used before. For instance, the mall card that had been taken out by you for getting a 10% discount at the time of registration but that has never been used ever since, will not count.

Don’t Accumulate Any Credit Card Debt If You Are Not in a Position to Pay It Back

Just because your credit cards are active, you should not assume that you could use them frivolously again. The reason behind debt consolidation is to effectively pay down all your loans and not just to lower your credit balance so that you could go about amassing a lot of debts again.

You may keep your cards open so that you could use them in the event any spending emergency actually arises. Experts recommend a relatively lower credit limit in all your credit cards if you are used to splurging and overspending. Lower credit limits could be a preferable option as opposed to destroying or canceling the credit cards, from the perspective of credit scores.

Don’t Opt for a Debt Consolidation Loan with High Fees

It is crucial to identify a loan with a low interest rate and it is also, vital to choose one that comes without any extra fees. Many loans are accompanied by a host of other fees such as origination fees that a lender would be charging for administering your loan, prepayment fees or penalties for paying off your loan early, annual fees, monthly fees, ongoing service fees, etc. You must choose only those companies that do not charge additional fees. Read the fine print carefully for hidden fees and penalties.

Conclusion: Do Chalk Out an Effective Plan

Debt consolidation necessitates some smart financial planning and firm budgeting. Before taking out a debt consolidation loan, you must determine what sort of monthly payment would be affordable to you. You must necessarily identify areas where you could curb your spending so that you could get on top of your debts quickly. If you are reeling under an overpowering debt burden, it is a wise practice to cut down unnecessary or frivolous expenses. Chalk out a smart budget and firmly stick to it. You need to win this battle against spiraling debts with determination and dedication all the way. Once you have a sound knowledge of the way different loans work and precisely, how borrowing could adversely impact your credit score, then you would acknowledge the fact debt consolidation could be a fantastic way of paying down all your outstanding balances faster.

Sujain Thomas
Sujain Thomas is an experienced blogger who has written articles for several renowned blogs and websites about various uses of social media to engineer more business traffic on business websites. She love to write about fitness and health too.

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