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Why is debt consolidation preferred these days?
Trapped in the complicated world of increasing number of unpaid debts? You may end up in many conditions after this. May be a very bad credit score will lead you to bankruptcy, or you can negotiate with your creditor to settle down an intermediate way of payments but the most used option these days is to apply for debt consolidation that is ask for a bigger debt on a collateral you own (secured loan) with a lesser interest rate. The reasons for opting this choice are many and we& 8217;ll consider the causes of its enhancing demand in the debtors these days.
1. With the demand and luxurious explosion in today& 8217;s life, people find it impossible to adjust the monthly income into a suitable budget and so they have to have debts which remain unpaid due to the same reason. After getting into such a financial crisis they try to find an easy way to get out of this and that is debt consolidation.
2. Financial instability is also another important reason to get trapped in many small loans for daily expanses. It usually is encountered in the sure hope of a better and financially sound future that even becomes far away after this.
3. The ability of people to reduce their debts and also to pay regularly their monthly payments leads them to the complicated world of debt consolidation. People find it difficult to improve their credit score by paying the debts regularly so before bankruptcy this is the last option available to them that is to have debt consolidation.
4. Financial instability is also a reason to get people toward offering their valuables as collaterals for having a debt consolidation. In the previous times, financial stability was not acuity but financial security was. In these days it is getting less reliable that& 8217;s why people are using collaterals like houses and cars etc.
5. Interest rate appears to be a curse for a debtor because it is paying more than your original loan was, so everyone tries to reduce it as much as possible and debt consolidation is considered to be an important tactic to lessen this interest.
Debt consolidation may appear to be a very feasible and convenient option but sometimes it is not. Because it obviously leads you to payment of a huge debt with the extension of duration and you also tend to lose the ownership of whatever you own. Then involvement of debt consolidation companies especially those of a bad repute and non-trust worthy will lead to many complications in the whole matter of payments.
Pitfalls of debt consolidation
In my mail box everyday I receive at least one or two mails regarding the debt consolidation companies and services and I always wonder how many people will be taken into these attractive statements without knowing much about the details. The luring claims of these companies include;
1. To decrease interest rate to almost a zero level.
2.50% lessening of monthly payments
3. A security to your company and debt.
If you are stuck into this whole system of unpaid debt these statements would look like a relieving pain killer or an exact ointment on your wounds. But before actually jumping on any of these services let me give a few drawbacks of this whole methodology that will compel you to think appropriately and then decide.
Zero Interest Rate
Well, zero interest rate is not possible humanly, because no fooling is sitting in these companies to let you spend all his money gaining no profit in return. Its just like you need to have a detailed calculation about the monthly payments you are going to make and the time period. Most of the times youll come to know that interest rate are as much as 22 to 25% high. You may be paying less monthly amounts but yeah the duration will be much prolonged.
Payments and their Share in these
You will pay your monthly amount to these debt consolidation companies and then lets see what can happen to those. First of all you may notice that they are having their share or fees in every payment and ultimately paying the creditor a lesser one. Then some of these companies are even notorious to make late payments or missed payments that will worsen your credit score and your rating for payments.
Balance Transfer Cards
These low interest balance transfer cards re very much into market these days even you can have dozens of them in your pocket. But what is the drawback? You ask for such a balance transfer cards and pay that low interest payments for few days, but after that time this interest rate is diminished and you have to either pay the original interest or even more than that thatll be devastating.
Negotiating
This is the part they said they are expert in, but actually they are misleading you so as not to involve you in this whole matter. The better option here will be to negotiate with the companies by you so that you wont have any doubts regarding the payments.