A lot of people gain from consolidating their loans. It saves them a lot of hassle, plus time and money. However, if you are not careful, you may get yourself into debt consolidation traps that will leave you frustrated and cost you a lot of money.
1. Consolidating when the interest rates are high
Consider the market when you are taking on debt consolidation. If you can consolidate when interest rates are low, you will save yourself a lot of money, especially if you can lock in that low interest rate.
Avoid taking on a consolidation plan when interest rates are high. You should also wait until you graduate from college in order to start your loan repayment or get into a consolidation plan. If you start too early, you will lose some of the benefits that are given to debtors. You will have a six-month repayment period after you graduate to start making repayments.
2. Consolidating together with your spouse
It might seem like a good idea to roll all your student debts into one once you are married. However, in the long term, this is not such a good idea.
For instance, most student loans are written off once the debtor dies. But if you have consolidated your loan with your partner, you won’t get this benefit if they happen to pass away. You will still have to repay their debt in full.
Also, in case you lose your job, you can defer your debt until you get another source of income. If you have rolled your debt into one, it will not be possible for you to defer the debt, unless both of you lose your jobs at the same time.
3. Not signing up for an auto debit
Signing up for an auto debit might seem a bit intrusive to many people. However, it is the best thing to do since it minimizes the chances of you getting late on your payment. Besides, you can cancel the auto debit at any time.
4. Paying a consolidation fee
You do not have to pay any fee when consolidating your loan. This is a tactic that is used by scammers. Avoid anyone who tells you that you are required to pay a fee in order for your debts to be consolidated. They are most probably not legitimate. This service is free.
5. Thinking all your problems will go away
Once you sign up for debt consolidation, do not think that all your problems will magically go away. You still have a lot to do. You have to keep up with your payments and you also need to manage your finances properly.
One of the reasons why people are unable to keep up with their debt repayments such that they end up signing up for debt consolidation is because they have bad financial habits. Find a way to deal with these habits. This can include talking to a financial counselor.