A debt consolidation loan can be very effective in taking care of your debt management problems; however, if you are not careful in choosing the best lender and the most appropriate loan agreement, you could very well find yourself in worse trouble. Some common mistakes, which you should be alert to:
Not Verifying Your Credit Report before Applying for the Loan
Your credit score is very important to lenders as it lists all your existing debts and instances of default. You don’t have to take your credit report for granted, instead, make an effort to get hold of a copy and peruse it in detail. If you note any errors, you should immediately report them to the credit agencies along with documentary evidence to support your claim and have them rectified. Make sure that the credit report has been updated before applying to any loan company to get the benefit of the best terms allowable to your risk profile.
Being Inadequately Prepared to Take on a Debt Consolidation Loan
When you apply to a debt consolidation company, you will typically have to produce proof of your identity, details of existing debts, your employment and salary details, including your tax returns. Unless you are prepared to furnish all these details, the loan application will not be complete and the loan disbursement will be unnecessarily delayed at a time when you are already under a lot of stress.
Not Calculating the Actual Cost of the Loan
Many lenders have the habit of only telling the applicant the amount of the monthly loan repayments and the tenor without explaining the details of the loan amount approved, the interest rate applied, and the other fees and charges that have been tagged on to it. It is for this reason that all loan companies are supposed to quote an APR, which reflects the true cost of the loan. Before signing up, be sure to get the detailed cost breakup and if they are not to your satisfaction, request moderation, else don’t take the loan.
Not Consolidating All Existing Loans
One of the main benefits of loan consolidation is that you have only one loan to manage and pay off every month. If you leave out some of your existing loans from the consolidation, you will not have truly benefited. However, take care not to include loans that carry a rate of interest lower than what you will be paying on the consolidated loan; otherwise, you will end up driving your interest expenses up.
Consolidation of your loans is just a single step for getting on top of your debt. To achieve true liberation, you will need to change your spending habits drastically. If you have taken a consolidation loan, you should lock up all your credit cards because if you continue to use them, sooner or later, you will end up again with a huge debt that you will need to manage in addition to your consolidated loan.