Credit consolidation is a form of debt refinancing that entails taking out one loan to pay off many others. The process can secure a lower interest rate to the entire debt obligation and also ensure faster payments of credit cards. A credit consolidating loan can be helpful in reduction of monthly payments as well aiding in quick credit card debts payment.
However, the promises that comes with credit consolidating loan dont always deliver. The reality that has been witnessed for many, is more interest payments, greater debt and high fees. This has gone against the expectations of many and has led into drown of finances. These traps can be avoided through proper debt maintenance and plan for the settlement. Here are some of the signs that a credit card relief loan may lead into drowning of your finances:
Use of the debt relief to climb out of debt.
You can end up with more credit card debts a few years later, if you use credit card relief as a cure for all your financial obligations. One might think it is wise to use credit consolidating to consolidate debts into a single loan but this maximize out the credit cards with new available credit. In as much as debt consolidation leads to making your obligations more manageable, changing your habit isn’t advisable. You need to adjust your spending habits and minimize your borrowings.
Credit card relief onto a home equity loan
Putting your house on the line can cause problems because this is pitting your home at a risk. This is because you will be pledging your house as a security for the loan. If you default on the debt relief loan, then you will lose your house which can result into financial problems.
Winding up paying more interest over time
While credit consolidating promises lower monthly payments, there lays one hidden serious problem with credit consolidation loans. Your monthly interest payment will be lowered, but your total interest payments will be higher as a result of extending your payments over many years. Pay not extending the payments.