According to reports, an average American family with at least 1 credit card owes a balance of $12,745 in 2010 and it’s no wonder that with the pitch of low monthly payments and single monthly installments, bill consolidation will sound an attractive option for the hapless debtors. Who doesn’t want to combine his liabilities into a single payment when he gets such an option? However, the debtors who are going through dire financial straits are so tempted by the illusion of taking out consolidation loans that they forget to consider the necessity of following a financial illusion along with debt repayment through such unsecured loans. Consolidation doesn’t deal with delaying the inevitable, which is bankruptcy; you also have to follow a strict financial plan in order to complete the process successfully.
Merging your debts through an unsecured loan – Avoid the personal finance illusion
It does make sense when you choose to get out of debt through an unsecured debt consolidation loan and you also have a well-structured financial plan. On the contrary, if you don’t have a successful financial plan and still you’re trying to combine your liabilities through a personal loan, you’re simply living beyond your means and postponing the day you may go bankrupt. Experts say that bill consolidation loans should be dealt with extreme caution as a wrong step here and there can make you fall further in debt. Taking out a bill consolidation loan is like playing fire-with-fire approach towards debt repayment and hence unless you follow a systematic plan, you won’t emerge successful.
A systematic plan that can help you complete the debt consolidation process with ease
Combining your debts into a single monthly payment isn’t the ultimate panacea to your debt woes and hence it is necessary for you to strictly follow a financial plan. Here’s what the financial plan should entail.
- Know the cons of betting your house: When you can’t qualify for an unsecured bill consolidation loan, you often start depending on the equity that you’ve accumulated on your home. However, before taking out a home equity loan, you should ensure knowing the cons of this option. As you’re betting your house, you might as well lose it in the event of missed payments. So, take resort to this option only when you’re confident about your repayment ability.
- Know the pitfalls of not shopping around: Most debtors believe in the myth that any kind of consolidation will help them save their hard-earned dollars but this is not the fact. If you don’t shop around and select a loan that carries much lower rates than what you’re presently paying, you might end up paying more than what you owed at the end of the repayment term. The extended repayment period will make you amass more on interest rates. Hence you have to choose the right loan to translate consolidation into huge savings.
- Know the downsides of missed payments: Once you start paying towards the new loan, a single missed payment will have an adverse impact on your credit score. Hence, you should have checked your savings account and your net worth before taking out a bill consolidation loan. Set reminders in order to make payments on time and avoid a hit on your credit score.
Therefore, when you’re wondering about the ways in which you can close the doors on high interest debt, take the above mentioned factors into account. Repay debt and protect your credit score.