Debts are always kind of problems that cause a lot of stress to people, thus handling these debts is very delicate process and should be done carefully. When a person has a number of outstanding credit card debts, he gets the convenience of combining them into a single loan with the help of a debt consolidation loan. Though credit card debt consolidation may seem to be the perfect solution to your debt problems, yet there are some risks involved in order to nullify your debt consolidation efforts. With credit card consolidation, you can usually simplify your total monthly payments and make repayment easier.
But if you fail to spot the risks involved in consolidating your credit card debts, you can get yourself in serious financial trouble. Here are some debt consolidation risks you must avoid before opting for this option. Note that these are very important, therefore you should read them cautiously in order to understand them properly, especially if you are not very familiar with the legal and finance terms.
Changing the nature of the debt:
You must be aware that you can consolidate your unsecured debts with a secured home equity loan. Apart from the varied benefits of low interest rates, longer repayment term and tax benefits, there are some particular risks involved while consolidating your credit card debts with a home equity loan. If you fail to make the repayments on time, you may lose your home to a forced foreclosure. Though the credit card lenders may not make you aware of this fact, you must be aware on your own.
Using a high interest rate loan:
It may happen that you have selected a loan without shopping around and you get the loan with high interest rates. If you choose to consolidate your debts with that debt consolidation loan, it is most likely that you may be subject to sky-high monthly payments throughout the term of the loan. This can have an adverse impact on your credit score and therefore it is always recommended that one should shop around and make sure that he gets loans with favorable interest rates.
Teaser rates on balance transfer cards:
You can also get duped by your creditors while transferring your balance to low interest rate cards. Such cards usually carry teaser rates during which the cards offer you 0% or very low interest rates. But the tricks applied by such cards are that they offer such cards without alerting the debtor to read the fine print. You must read the fine print in order to stay aware of the introductory period and make sure that you transfer your entire high interest rate debt to the balance transfer card before the introductory period ends.
Thus, if you’re someone who has decided to go for credit card debt consolidation, you must make sure you avoid the risks mentioned above. Avoiding the risks will help you take an informed and measured decision when it comes to debt consolidation.