Debt-consolidation is one of those many sets of financial words that come with a mental groan attached to them. It’s right up there in the groan-worthy category along with such “well-loved” words and phrases as: annuities, retirement planning, credit card debt, liabilities, security agreement, and estate planning. Groan, hiss, booo, ick. Right?!
Even though talking about certain financial matters can be a real drag we’ve got to go over a few things so we can protect ourselves and not be all like, “Crap, what did I get myself into now?!” Or, “Why didn’t I plan for that?!”
If your household finances are in flux one of the methods for controlling the madness could be debt-consolidation. Since what you don’t know could hurt you we’re going to go over some important stuff, so you can start and finish on the right track if you decide debt-consolidation is an avenue you would like to pursue.
Here are 7 no-no’s to be aware of during the debt consolidation process:
Defaulting on a Home Equity Loan
If you have taken out the equity in your home to cover your debts but do not make the payments on time or at all, you are at risk of being homeless. Take out a home equity loan only if you are certain you can repay it according to the loan agreement.
Maxing Out Your Credit Cards
There are some who will utilize the balance transfer promotions credit card companies offer to pay down their debts. Unfortunately, if you max out your available balances you could end up hurting your credit rating due to the calculated ratios of available credit versus what you have used. You also run the risk of creating further debt thanks to credit card fees, increased interest rates, and the inability to pay down the new debts you’ve created.
Defaulting on a Family Loan
If you have relatives that are generously able to offer you consolidation funds but you default on making payments as agreed, you can risk being sued in court for the money. It is more likely that you will lose the relationship you had with your family member due to the conflict.
Choosing the Wrong Counseling Agency
If you decide to tackle your debts through a debt counseling agency that restructures your payments to creditors but don’t do the necessary legwork to check the reputation of the company, you may end up being scammed out of your cash and still have to deal with your unpaid debts.
Unqualified for a Loan
If you have all your plans set on getting a consolidation loan to solve your debt problems, make sure you are eligible to receive such a loan for the amount you need. If you are already experiencing problems paying your monthly financial obligations, you decreasing credit score may be a roadblock with lenders.
With some types of debts, creditors are willing to settle debts for a percentage of the original balance. If you may arrangements with your creditors to settle debts, be sure you can afford what you are proposing. Oftentimes creditors expect that payment in full in a certain amount of time and if you fail to follow through you may find yourself on the receiving end of a lawsuit.
Hitting Up Your Retirement Funds
If you have a well-established 401k or similar type of retirement account and plan to use money withdrawn from there to consolidate debts, make sure you have a plan to repay the funds per the agreement. You also want to make sure you have a contingency plan for repaying the funds even if not required for the sake of your future retirement.
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