Recent studies have shown that credit card debt is a major problem with Americans today. The average American has a credit card balance of around $8,000 USD spread over several store cards and multiple credit cards. As a result of this high debt load, many people are opting for credit consolidation to combine all of their credit card bills into one fixed (more affordable) monthly payment.
Credit consolidation can save the average person a serious chunk of money because interest rates on credit consolidation loans are as low as 6% whereas the interest rate on credit cards can be as high as 24%.
Credit consolidation tips and traps
Although many financial institutions can provide a credit consolidation loan, there are loads of traps you should be aware of. Here are 5 credit consolidation tips and traps you must know:
1. Credit consolidation scams: Each year, far too many people fall prey to credit consolidation scams. Despite the impossible claims of an instantaneous credit fix by shady credit repair companies, no one can eliminate debt overnight. You still owe the debt and you have to pay it off. Check the authenticity of the credit consolidation firm with BBB (Better Business Bureau).
2. Easy loans: Many financial organizations offer credit consolidation loans with low interest rates to lure debtors with bad credit histories. It is quite normal to get attracted to these ‘easy loans’ as the bad-credit loans attract very high interest rates. But, what people forget is that although the lender charge low interest rate on these loans, they extend the loan term for an indefinite time period. Therefore, if you don’t read the “fine print” carefully, you may end up incurring eternal debt.
3. Non-profit organizations: There are various non-profit organizations in the market. These companies charge a nominal fee for their services. However, there are very few honest non-profit organizations in the market. Most of these firms are out there to victimize you. So, be very careful when you talk to the credit consolidation experts via phone. You must check the reputation of the firms with the BBB.
4. Check the agreement letter: Be careful when you sign any agreement letter or contract. Don’t sign any contract unless you understand the terms and conditions fully. You must go through the “fine print” section carefully. Sometimes, hidden fees are written in that section. You can hire a lawyer to protect you from the legal jargon involved.
5. Compare: Before choosing any credit consolidation firm, make sure to compare the rates charged by the different firms. This will help you to know whether a particular firm is charging a high interest rate on a consolidation loan.
Finally, stick with those credit consolidation firms that have been in this field for many years. They have experienced professionals to help you.
Photo by Brian Teutsch