Credit card debt is rampant among Americans. In fact, it’s one of the primary reasons consumers file for bankruptcy.
But it doesn’t have to be this way: Options like debt consolidation can help you avoid this course, rolling your high-interest credit card payments into a single amount owed so you can more easily track your payments.
Nonetheless, it is not a failproof option. There are common credit card consolidation mistakes that can land consumers squarely back at the starting line when it comes to paying down their bad debts.
If you choose to consolidate your credit card debt and have a feasible plan to pay it off, that’s a great choice – but here are the top four mistakes you should avoid at all costs.
#1: Falling for a scam
When you engage a debt relief company, tread carefully. Your partner in helping you find financial freedom should not be pushy or coercive, nor should they charge you astronomical fees. Do your research before engaging a debt relief company and be sure to secure a signed copy of an agreement that lays out both parties’ obligations.
#2: Failing to read the fine print
No matter whether you choose to consolidate your debt by applying for a loan or transferring your balances to another credit card, make sure that you fully understand your lender’s specific terms and conditions. For instance, if you do a balance transfer, be sure you confirm the interest rates that will apply. If you opt to take out a personal consolidation loan, consider whether it is secured or unsecured, if the interest rate is fixed or variable, and the lender’s required payoff timeline.
#3: Immediately reloading your credit cards
Once you successfully pay off your credit card debt, the last thing you want to do is immediately rack up charges on those very same accounts. Doing so can land you right in the position you started – the one that got you into debt in the first place. Even if you choose to pursue debt relief through consolidation, make sure you take the time to learn how you got into trouble in the first place, as well as what you can do to avoid it in the future.
#4: Swapping an unsecured debt for a secured one
Credit card debt is unsecured, meaning that you don’t have to offer your creditors any of your personal property – like your home or your car – as collateral against the loan. This is generally because the interest rates on credit cards are so high, which protects the lender. If you choose to consolidate your debts by taking out a debt consolidation loan, make sure you don’t take out a secured loan that will force you to turn over the title to your car or to offer your lender the option to claim a lien on your home in the event you default. Unless you are absolutely certain you will be able to make your payments on time, it is advisable not to take out a secured consolidation loan.
Credit card consolidation is meant to help you clear your debts and get back on track, so it is best to avoid these common mistakes that can make your financial situation even more challenging and complicated. If you have questions about debt consolidation or would like to learn more about how it can help you get out of debt, contact us.