If you have multiple high-interest debts that are challenging to manage, a debt consolidation plan might be the best way out. The plan involves taking a new loan to clear all the previous debts so that you are left with a single loan that is easier to manage. Therefore, all your previous loans have not disappeared but are still there under the new debt consolidation loan. This post takes a closer look at debt consolidation loans to help you understand four don’ts that you should always remember.
What Loans are Covered by Debt Consolidation Plan?
Before looking at the don’s that you should observe when taking a debt consolidation plan, it is important to understand what types of credit it can address. The aim of debt consolidation plans in Singapore is to help borrowers address the challenges of high-interest unsecured debts. So, here are some of the debts that you can consolidate under the debt consolidation loan:
- Personal loans.
- Credit card loans.
- Line of credit.
- Renovation loan.
- Student loan.
A debt consolidation loan is recommended if it can help to bring down the overall interest rate of different loans. Therefore, it will be a good idea to review the plan well before signing off on the agreement. This is why you should work with lender comparison sites, such as Lendela, to identify the best debt consolidation loan.
These are 4 don’ts to remember when using a debt consolidation loan…
Here are the four common don’ts that you should observe to ensure the debt consolidation works to your advantage:
1. Don’t Just Use Any Debt Consolidation
When taking a debt consolidation plan, it is important to appreciate that it is another loan being added to the top. Therefore, you should not simply pick any, but only the one that comes with good terms and conditions. This includes low-interest rates, no hidden charges, and room for refinancing.
2. Don’t Use Your Unsecured Credit Facility
The reason you are exploring the option of debt consolidation is that you took multiple credits, and they are now pretty challenging to manage. Therefore, you cannot afford to slide back even before getting out of the problem. To use your unsecured credit facility, wait until the debt drops to manageable levels, something like less than eight times your monthly salary.
3. Don’t Miss a Payment
One mistake that you should avoid as much as possible is missing payments because it can have severe implications. One, missed payments are likely to reflect on your credit report, pushing down your credit score. This implies that you are likely to find it challenging to secure credit in the future because no lender will want to be associated with a risky party.
Defaulting loan repayment also attracts heavy penalties, which will raise the cost of credit. Instead of incurring these risks, you should ask your bank to make deductions from your account and pay the loan every month.
4. Don’t Stick to Your Old Habits
To avoid getting back into trouble, you should also drop the old habits that brought about this problem. Most people end up with high-interest debts because of taking multiple credit card loans. Now, you need to change this habit by ensuring you only buy what is necessary. Consider building your skills in budgeting to be able to live within your means and only borrow what you can repay.
When used well, debt consolidation plans Singapore, or whichever country you reside in, might be the stepping stone that you have been waiting for to succeed. It offers you a second chance, allowing you to regain total control over your finances. Remember to avoid falling back to your old habits that can result in uncontrolled debts.
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