Although making one consolidated payment may be easier, more convenient, and may offer a lower interest rate, financial experts will warn to proceed with caution. Missteps along the way could impact your credit rating or put you at unexpected financial risk. Here are three debt consolidation mistakes to be on the lookout for when researching debt consolidation options. A caveat is that interest rates increase after an introductory period, so make sure to read the terms and conditions of the balance transfer agreement carefully and thoroughly. “It may sound like a great deal if a card is offering you 0 percent for 12 to 18 months on a balance transferred from another card, but chances are you’re receiving that promo rate after paying 3-5 percent up front to do the transfer,” she explains. According to Anastasio, this will add to your total debt and make your minimum monthly payment even higher. “Those promo rates also expire, so try to go into the process with the intention of paying the balance off in-full before the promotional period is up,” she says. There could be even deeper credit implications if you transfer balances from one card to another and then another each time the promotional period expires. “Beware of the vicious cycle of paying only the minimum. Just because you’re not being charged a high-interest rate during the promotional period does not mean you’re getting rid of your debt,” says Anastasio. Sara Rathner, credit card expert at NerdWallet, outlines issues you need to be aware of during the debt consolidation process: It’s time-consuming, there could be thousands of dollars in closing costs, and you may need to purchase private mortgage insurance if you don’t have enough equity in your home. But, putting your home on the line is even more serious, so be sure you are in a position to pay your mortgage on time and in full. “If you can’t afford your mortgage payments going forward, you risk losing your home,” Rathner warns.
