Every day, you probably get at least 1 piece of regular mail that offers you low-interest deals to consolidate credit card debt or other incredibly alluring deals for debt consolidation. People who are so caught in the quicksand of consumer debt would easily believe anything these mails promise them, and they would do anything to make their debt go away. Here are the worst debt consolidation moves that one could do:

1.) Getting Hard Loans

A lot of people believe in a myth that debt consolidation loans are easy to get. If you are in a position where you are actually considering to get a debt consolidation loan, it often means that you have already missed some payments and your credit score is very low. The problem is, you may get a debt consolidation loan but because you are a credit risk, the consolidator most likely charge you a much higher interest rates as high as 21%-22%. It may be true that your monthly payment will be lower but the period of time you need to finally pay everything off will be longer and you will be ending up paying way more.

2.) Trusting Debt Consolidators To Take Care of Everything

Big debt consolidation companies often offer to take care of everything such as negotiate lower interest rates and decrease your monthly payments.

What they don’t tell you though, is that many of those debt consolidators are actually building in a fee into your monthly payment that you make, which is usually about 10% of the payment. After passing your payments to your creditor, they get back something like 10% of what you paid. The creditor is only happy to rebate this to the consolidator.

It is very possible to negotiate yourself to get a lower interest and stretch out your repayment schedule and even manage your debt by paying off the higher-interest debts first. Why would you pay someone else to do this for you?

Big debt consolidation companies would tell you that they could save you decades of repayment schedule and cut it short to only a few years. But if you calculate the time you would need to repay it using a non-biased calculator like MSN Money Debt Consolidator, you will find out that you are be able to repay everything even faster.

Another risk that you need to be aware of if using a debt consolidation company to take care of everything is that they may make late payments or even miss payments and this will even worsening your credit record.

3) Credit Card Balance Transfer

You have probably received emails or regular mails that offer you low-interest balance-transfer cards. Often these rates only last a few months and you will have to switch cards again. This kind of activity will start to show up in your credit report.

If you decide to transfer your balance from your current card to the low-interest card, make sure that you are able to pay of your transferred debt within the time period that the low interest lasts. Also, formally close all the other credit accounts which balances you have transferred to the new card. If you do this, request the credit card company to give a remark on your account that says, “Closed at customer’s request.” This is to avoid looking as if the creditor closed your account in your credit report, making you look like a worse risk.

Popularity: 1% [?]