Debt consolidation is when you take out a loan in hopes of eliminating your other debts. It is rather paradoxical because you will acquire another debt in the process, but it can be highly effective when executed properly.
To find a legal money lender in Singapore and make the most out of this gamble, avoid these terrible mistakes:
Opting Not to Consolidate Debts Due to Bad Credit
A common error of individuals with bad credit is thinking that debt consolidation is not a viable option because of their situation. It may be hard to find a lender who is willing to extend you credit when your credentials say that you will likely default on your loan, but there are suitable financial products for you. Although they may come with high interest, they can surely help you reduce your overall indebtedness.
Applying for a Debt Consolidation Mortgage
Many deeply indebted individuals choose to refinance their mortgage to access extra cash to cover other debts with higher interest. Borrowing against your property again may work wonders, but it involves major long-term consequences.
Firstly, it will reset the clock of your mortgage, which means you will go back from the start and possibly offset the gains you have made after paying it for years. Secondly, you may expose yourself to a greater likelihood of foreclosure.
Shunning Credit Counselling Singapore
It is almost a crime to pursue debt consolidation without expert advice. Before you pull the trigger, you need a clear strategy and deep knowledge of all the options to make an informed decision. Otherwise, you may inadvertently dig yourself a deeper financial hole.
Credit Counselling Singapore, for instance, can assist you in speaking with lenders and breaking bad habits to prevent beginning a new cycle of indebtedness. Moreover, you may learn different best practices when it comes to debt consolidation.
Forgetting About Prepayment Penalties
Another rookie mistake is taking just the unpaid balances into account. If you have creditors that penalises prepayment, you may fail to obtain the necessary funds to settle your bills. Many lenders charge fees for extra payments to maximise the profit they could make out of the deal.
Review your existing loan contracts to find out whether you will be punished for paying your debts in advance. If there is a pre-payment penalty, include it in the equation to borrow adequate funds to cover it.
Deciding Not to Check the Moneylender Registry
When choosing a moneylender, it is best to check the Ministry of Law’s Registry of Moneylenders. This way, you can avoid dealing with an unlicensed lender. Companies in the illegal money lending business do not play by the rules and are usually guilty of abusive behaviour.
Debt consolidation has the potential to help you bounce back financially in the long run or put you in a worse situation. Do due diligence to calculate its risks and avoid mistakes that you may regret for a long time.