Debt Consolidation Dos and Don'ts

Debt Consolidation The "Dos" and "Don'ts" 99 BILL BILL Do save money while repaying debt Depending on the depth of the hole you've dug, it can take years to get out of debt. So some savings must be established and maintained to establish a healthy bottom line. At minimum, put in place an emergency fund to prevent further borrowing in case of a rainy day. Don't borrow more than you can afford Obvious? Yes. But it's an oft-overlooked rule to borrowing. A common error that befalls borrowers is focusing too much on the monthly payment and disregarding the fact that they will have to make that payment for the next 72 months of their lives, in the case of lengthy car loans. INTEREST BIY Do find the best interest rate Imagine making a monthly payment of $300 on a $10,000 credit card balance. If you find a card with a 4.9 percent interest rate card, that debt can be repaid in 36 months. But if your card sports an 18 percent rate, it'll take 47 months-nearly a year longer -to pay it off.. Don't keep on struggling If you can't really afford your debt repayments and it's obvious you need help, ask for it -a debt adviser should be able to help you decide whether you need a professional debt solution, and if so, which one. Do read the fine print Many smart people have been unpleasantly surprised by loan details obscured by legal terminology or excruciatingly small fonts. Avoid joining that club by investing in a magnifying glass and familiarizing yourself with the terms and conditions of your loan. Don't keep using your cards Don't keep on using your credit cards, store cards and/or overdraft facility once you've taken out a debt consolidation loan. If you run up fresh debts, 'replacing' the ones you've just paid off with the consolidation loan, you'll be in a much worse situation than you were before you took the loan out. Do pay on time – every time Don't fall victim to bad loan products Though emergencies and accidents do come up, avoid paying late if at all possible. If you must do so, prioritize your creditors. In extremely tight months, skipping the cell phone bill or the cable bill will have a less deleterious effect on your credit report than skipping the credit card bill. Good borrowing can improve your financial prospects, such as a stable mortgage that leads to a paid-for home or a low-interest rate car loan for a vehicle that gets you to work. People can make poor decisions when it comes to these loans, but the products themselves can hardly be blamed. Don't borrow frivolously Do remember: borrowed money is not free Not only does borrowing cost interest and fees, but it deprives you of future opportunities. Instead of servicing debt you could be buying different items or investing. In other words, your past-self is robbing your future-self – which is a good reason not to borrow frivolously. Borrow money only for good long-term purposes, like to get an education, to buy a car, to buy a house, to finance a business. Those are all good reasons to borrow money. And you would expect to pay off that loan before you've reaped all the benefit from it. Sources: bankrate.com, ezarticles