For customers that are trying to keep their head above water in debt, a consolidation loan may seem like the best option that is available at the time. Using a consolidation loan, the customer is able to take all of the existing debt with multiple credit card interest rates, multiple debt amounts and create one loan that is used to repay the multiple debts, with a lower interest rate.
Though a consolidation loan may capture the attention of the consumer, there are certain things that should be considered. First, the consumer that takes advantage of the consolidation loan must be committed. Many customers use the consolidation loan to repay the existing debts, and then accumulate new debt through the older credit cards and then being required to repay the consolidation loan payments that must be made on a monthly basis, in addition to the new debts that have been accumulated through the credit cards and other types of credit lines that had been originally repaid with the consolidation loan.
For customers that have chosen the consolidation loan, there are techniques that can be used to avoid the consolidation loan trap – and having doubled the debt that must be repaid.
Customers can close the accounts of the credit cards and credit lines that had been originally repaid with the consolidation loan. Closing these accounts can ensure that the customer is not going to have access to the funds and will therefore not rack up the debt on the credit cards and credit lines again, to have to repay the funds.
As an alternative to closing the accounts, which can impact the credit score of the consumer, the consumer may want to consider contacting the financial institutions to simply reduce or lower the credit limits that are in place on the account. Reducing the credit limit on the accounts can ensure that they can be used responsibly and the debts that are accumulated throughout these accounts is going to be easily managed by the consumer – without requiring additional stress on the budget.
Lastly, the customer can avoid the consolidation loan trap by simply ensuring that they are making the decision to spend responsibly for the credit cards that are available. Spending responsibly means only using the credit cards and lines for the funds that can be repaid within the month, in full, to reduce the interest rate. This way, the customer can repay the credit within the grace period, avoid paying interest and ensure that the debt is not going to require an additional consolidation loan or payments that must be repaid.
Consolidation loan services are a great option for customers in debt – but it’s important to consider the affect on the finances, including the effect on the credit rating before making any financial decisions that are going to affect the consolidation loan and debt.