In an ideal world, no one would have any debt. They'd pay cash for everything and not borrow money to pay for things they can't currently afford. Unfortunately we're not living in an ideal world, and there are many people with debt, either from past mistakes, or emergencies, or even sometimes because of being dealt a bad hand in life. Debt can be crippling, with payments sometimes so large that it makes it hard to get ahead.
When people are in such a hard situation with their debt, they often look into debt consolidation to allow them to breathe a little bit. I think this post by reader Eddie about the pitfalls of debt relief and things to consider is very insightful and can be helpful to any of you readers who might be looking into debt relief.
Debt relief, also known as debt consolidation, is deemed to be a useful means to fix the burden brought about by multiple debts. Indeed, the thought of having so many debts to settle in a month can be drowning. For one thing, you have to keep up with the payment schedules of your credit cards, loans or utilities and deal with the varying interest rates and, even, penalties attributed to each form of debt that you have acquired.
In this case, to fix this problem, you need debt consolidation as your practical solution. Debt consolidation, simply put, is a process of combining your multiple debts into one. So, what happens is that you go to a lender who would pay off all your debts into one payment. Sounds a doable solution to the problem, right? As tempting as it may seem, you have to consider the following pointers as debt relief may offer you more traps than escape from your financial burden if done incorrectly.
Trap no. 1: It’s debt that’s wrapped fancily.
You may be thinking that debt consolidation solves everything. Not really. You can look at it this way. You go to a lender, and you ask for financial help to pay off all your debts to ease the burden. You get approval, and the lender will pay off everything once and for all. However, don't forget that it’s still debt that you owe from another lender. The terms may be different, but you continue paying another debt.
Trap no. 2: It Doesn’t fix the cause of your multiple debts.
The convenience brought about by debt consolidation may be very satisfying. However, it does not address your problem. Does it answer the question: Why do I have multiple debts? Maybe the answer to that is YOU. You may have made your financial burden more comfortable, but you haven’t identified your incorrect practices when it comes to your finances.
Maybe you're an over-spender who loves maxing out your credit cards. Maybe you don't have emergency funds to use instead of swiping your purchases with a credit card. Perhaps you're not living within your means, and you're enjoying a very lavish life. Look inward as supposed to outward to get the solution for your financial problems. [Or maybe you aren't living lavishly, per se, but your income simply doesn't cover your expenses, in which case you'll need to either figure out a way to increase your income or decrease your spending, even if you weren't living lavishly beforehand. -Penny]
Trap no. 3: You fix the wrong kind of debts.
With the hope that you can consolidate all your debts into one single payment, you missed out on the fact that some debts can be left alone. What it means is that there are debts that can be best consolidated while there are those that should be shouldered by you alone. Why? If you consolidate debts that have individual high-interest rates, then you end up paying all of these at a much higher rate. It may help you manage your debts efficiently, but it doesn’t offer you financial ease or relief at all.
Trap no. 4: You become a victim of a scam.
As there are hundreds, if not thousands, of individuals out there who are seeking debt consolidations, so are individuals and companies that would scam you in this situation. The truth is you can hire a professional to help you with your debt situation. However, you need to be careful as there are a lot of predatory scammers who would promise you freedom from your debt, but end up ripping you off with your money. The best way to avoid this predicament is to check the legitimacy and performance rating of the debt consolidation company through Better Business Bureau (BBB). We recommend Curadebt and to check out this review, https://www.facethered.com/curadebt-review/.
Trap no. 5: Using your house as collateral.
If you go into this area, then enter at your own risk. Don't make the stupid mistake of using your Home Equity Loan to pay off your credit cards or personal loans which you can pay using your income or savings. If you use your house as collateral, there’s an excellent chance it could be foreclosed. Would you exchange your home for debts that can be consolidated in another way? Think it over. No matter what happens in your life, if you have a house that you can call your own, then you're secured and safe. Your home is one of the best forms of security in your life, don’t make a life changing decision that would ruin this.
Conclusion
Debt consolidation may offer you convenience in many ways, but you have to assess it carefully if this would be the best solution to lighten up the weight of your debts. There could be other possible solutions available out there that might offer you peace of mind. Don’t jeopardize your financial freedom over a wrong move made for the love of debt consolidation. So have you fallen into any of these debt relief traps?
See my disclaimer.
Have you ever consolidated your debt/got debt relief? Did it help or make things worse, and if so, how? What would you add to this list, of things to be careful about when looking into debt relief?