That pretty ad that says “get a low-interest loan to pay off your debt today”, is looking very enticing and clickable, but what it doesn’t show you is the truth about everything that you need to know. For example, if you do debt consolidation with a balance transfer card, these cards carry a 3%-5% upfront fee! If you have bad credit, debt consolidation will cost you more than if you were to just keep paying minimum payments on your own and much more than if you were to use a debt relief program. Today, we will show you the truth about debt consolidation and the different ways available to consolidate your bills. Getting a low-interest loan can be extremely beneficial, but not if there are pre-penalty payoff fees involved and not if the interest rate is higher than the average interest rate that you are currently paying.
Read the debt consolidation loan contract very carefully, and verify all of the fees and interest associated with the loan. Debt consolidation usually comes with an up-front fee, pre-penalty fees (meaning, you get charged extra if you pay off the debt early) and high interest. Use a debt calculator tool, and figure out how much you will end up paying if you continue doing what you are currently doing on your own, versus the cost of paying off the debt consolidation loan.
- Balance transfer card to consolidate debt – these balance transfer cards can be a great way to consolidate your debt but only if you can manage to get the balance paid off within the introduction time period. See, balance transfer cards offer you that “low-interest rate” only for a certain number of months. Usually, you have 12-months to pay off the balance transfer card at 0% interest rate, and then the rate goes up to 19% or higher. On top of that, all balance transfer cards come with an upfront fee that averages at around 3%-5% of whatever the total is that you are transferring to it.
- A home equity line of credit – another great way to clear your high interest. You can transfer high-interest credit cards to a home equity line of credit and then enjoy a 4%-5% interest rate, versus the 25% interest rate you are currently paying. But the truth about this type of debt consolidation loan is that you are switching an unsecured debt for a secured debt, drastically increasing the risk factor involved. What I mean by that is, if you stop paying on this type of debt consolidation loan you could end up losing the collateral, which is your home!
- Bad credit debt consolidation loans are EXPENSIVE – anytime you get a loan with bad credit, you are guaranteed to pay an arm and a leg. No reputable bank will loan to a person that is already overburdened with high debt, but high-interest loan sharks will! If you are Googleing, “bad credit debt consolidation”, beware of who you deal with. With bad credit, debt relief programs can offer you a much better solution. A debt validation program can dispute your bad debts and repair your credit, all in one!