Debt consolidation can be a good way to come out from under overwhelming bills. It should be known, however, there are possible pitfalls to avoid.
What is debt consolidation?
With debt consolidation, all of your bills are reduced to one payment. All of your credit cards, loans and other debts will be paid off by the lending institution. You will then pay the lender back each month.
Danger One
First, if you are going to take this route, be sure to use a reputable lender. Otherwise you may find that there are many hidden fees that were not explained up-front by the lender.
Danger Two
Make certain that what you are getting is a consolidation loan and not some form of debt settlement. Debt settlement, while a legitimate option, will hurt your credit score. This method convinces the credit card companies to lower your total debt in exchange for payment.
Danger Three
You must pay the consolidation loan on time. Otherwise your credit score will take a hit.
Danger Four
Avoid debt consolidation companies. They tend to charge very high fees. Also, these companies tend to have a reputation of not paying off your creditors properly, which reflects on your credit score.
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