Consolidation Missteps to Avoid

The risks of debt consolidation are usually a result of several common missteps by the consumer. Read on to learn how to avoid the seven most common mistakes consumers make when consolidating debt.

1. Not reviewing your credit report regularly. Before you embark on a debt consolidation plan, you should thoroughly review your credit report to see exactly where you stand with your creditors. This will also give you a benchmark to which you can compare your credit report once you finish consolidating debt.
2. Picking a bad debt consolidation service. The quality of your consolidation company will make all the difference with the outcome of your repayment plan. When you select your service, choose a company that is recommended by other people or professionals. Reputable consolidation companies should be endorsed by the Better Business Bureau (BBB).
3. Glossing over the fees. Every debt consolidation method will have expenses associated with it. Professional consolidation may involve a monthly service fee, a processing fee, and/or a commission fee. Find out exactly how large these expenses will be. Also ask for a list of all fees associated with the consolidation. For example, some services assess a commission fee and a fee for paying off your balance before it's due (varies by service).
4. Making decisions in haste. Consumers are often so eager to improve their debt problems that they make poor, rushed decisions about their consolidation companies or plans. Take the time to consider several debt consolidation companies. You shouldn't select the first service you find, nor should you necessarily go with the cheapest service.
5. Not double-checking the math. Your credit counselor or consolidation company will provide you with figures on your monthly payments and the total amount you will have to pay to get out of debt. Make sure you double-check all of these figures. Consolidation services make mistakes, and you want to be sure you have the right numbers before committing to a plan.
6. Ignoring the risks of secured debt consolidation. Secured debt consolidation loans sometimes appeal to distressed debtors because they offer highly competitive interest rates. On the other hand, secured consolidation loans are unbelievably risky. If you begin missing payments, your lender has the power to take your home, car, or whatever other property you offered as collateral.
7. Lumping all accounts into the consolidation regardless of interest rates. Consolidating every last debt you have is not necessarily a good idea if you have some accounts with very good interest rates. For example, if you carry a balance on a card with a zero percent APR, it doesn't make sense to consolidate the debt at a higher interest rate.