A consolidated loan can take a long time to get covered especially if one is making minimum monthly payments. It is important to set a budget that is dedicated to repayment of debts and assign funds to it at regular intervals.
Sometimes when you feel the brunt of unpaid finance bills and credit card payments, opting for a debt consolidation arrangement may seem like the best remedy.
Debt consolidation means the clubbing together of one’s various outlying debts such as credit card and loan payments into a single monthly repayment. Industry experts say, while this process can bring you a relief by simplifying or reducing your stock of monthly payments, however, if you have numerous credit card accounts, it is essential to note that a debt consolidation loan does not remove one’s outstanding credit or debt.
Rohit Garg, Co-founder and CEO, SmartCoin says, “The process of debt refinancing allows one to take out a single loan to pay off multiple ones. The process can help in securing one loan at a comparatively reduced rate of interest to pay off any accumulated debt load and extending the service of repaying only a single debt or loan.”
Here are some common mistakes people commit while signing up for a debt consolidation loan;
Experts say a lot of people who apply for a debt consolidation loan fail to fully comprehend the gravity of the situation. While choosing to consolidate your debt into one lump sum, one must recognize the seriousness of the circumstances and closely scrutinize how they arrived at such a conjecture in the first place.
Garg says, “Sometimes, people often fall short of assessing all available options. There are several alternatives that people can opt from as there is no one standardized method for debt consolidation.” He adds, “People can choose from a vast surfeit of possibilities such as shifting all credit cards into a single one, opening a new credit line or even subscribing to a secured/unsecured loan from the bank.”
Also, people often fail to curb their access to credit. Debt consolidation if not conducted appropriately can prove to be a great gamble. It is essential to limit your credit finances, hence, closing multiple cards at once can result in a drop in your credit score.
Industry experts say many people do not have a genuine plan to pay off the debt consolidation. Garg says, “A consolidated loan can take a long time to get covered especially if one is making minimum monthly payments. It is important to set a budget that is dedicated to repayment of debts and assign funds to it at regular intervals.” Hence, if you aspire to be debt-free fast, you can also transfer additional bonuses, refunds from taxes, cash gifts or any other sort of remuneration to the debt account.