There are several reasons why people choose to refinance their credit card debts. However, some reasons are more common and perhaps more valid than others. One such is the need to undo mistakes made while using credit cards.
In light of this, things can get a lot more complicated when the process of refinancing is not well-informed. Some of the adverse consequences that may come out of it include:
- Higher interest costs
- Increased monthly payment
- Credit score damage
- Debt accumulation
- Prepayment penalties
- Emotional stress & anxiety
- Delay in the achievement of financial goals
- Poor terms and conditions
There are a lot more adverse consequences besides the above-listed. To ensure that you avoid these common credit card refinancing mistakes, it’s important to have a good understand of what they are. Fortunately, some of these and how to avoid them will be discussed here in this article. So, read on to find out about this.
Pitfalls to Avoid When Refinancing Credit Card Debts
Prevention is better than cure as the common saying goes. However, things can take a turn for the worse when the wrong treatment is used when there is a need for a cure. That is just how things are when credit card refinancing is gone about the wrong way.
As a result, everything reasonably possible must be done to avoid this sort of refinancing mess. To this end, here are a few pitfalls and how to avoid them:
Wrong/No Motivation
There has to be a reason for refinancing and a logical one at that. So, not having one or an illogical reason is out of the question. This could amount to taking out a loan that you should never have taken in the first place. Speaking of logical reasons (motivations), there are a couple of them, including:
- Debt Consolidation
- Better Cash Flow
- Financial Relief
- Repayment Flexibility
- Tax Benefits
- Achieving an Improved Credit Score
- Avoiding Late Fees & Penalties
- Reduced Interest Rate
- Fixed Payments
Sadly, none of the aforementioned or any other logical reason explains why some people apply for this sort of loan. For the record, having no valid motivation for this action can be the beginning of a financial crisis or a bigger financial crisis.
Not Considering Your Credit Score
Refinancing is about achieving a couple of things. However, some of these things are more important than others. Achieving a reduced interest rate is high on the list of the most important things that this loan should offer.
However, your ability to get loans that offer this important feature is largely dependent on your credit score. As a result, applying for this credit line without considering your credit score is a bad move.
So, make sure to check this important detail. Thereafter, you need a good answer to the question of whether yours qualifies you for the kind of loan that you need. You would need to work on your credit score if your candid answer to this question is ‘NO”.
Furthermore, consulting a loan agent can prove helpful in knowing the terms and conditions for securing the kind of loan that you need. You can visit besterefinansiering.no/refinansiering-av-kredittkort for more information on this. By the way, loan agents can be very helpful in scanning the market for the best deals.
Settling for Just Any Offer
You must be willing to make the most of the competitive nature of the credit market, regardless of your reason for needing this loan. This calls for exploring several options before settling for any offer.
The reason for this advice is that the first offer is not necessarily the best one. Experience has even shown that creditors are more likely to offer better deals when they know that other offers are on the ground.
So, make the most of the market by thoroughly exploring it. Some of your basis for comparing offers by several creditors should include:
- Interest Rate
- Repayment Terms & Options
- Terms & Conditions
- Additional Benefits/Features
- Customer Service && Reviews
- Approval Process & Eligibility Requirements
- LTV (Loan-to-Value) Ratio
- Loan Amount
Once again, the possibility of getting several offers promptly is why a loan agent is very helpful, as mentioned above. Using the services of a good one means that you get at least 20 offers from various creditors in the market.
However, this does not mean that you cannot properly explore the market for offers without the services of loan agents. You may not just enjoy the privilege of getting timely offers and professional advice from these brokerage service providers in the credit market.
Not Thoroughly Going Through Fine Print
There is what creditors tell you versus what they say in their contractual agreement. You need to understand that both are not necessarily the same. Furthermore, you will be bound by what is stated in the contractual agreement, as opposed to what they tell you.
Against this backdrop, you would be making a huge mistake agreeing to a contractual agreement that you have not gone through. Unfortunately, many people are fond of doing this and some of them quickly realize that they have been deceived into taking the wrong deal.
For example, some creditors entice prospects with mouth-watering interest rates. However, the interest rate may just apply for a time being, as a bonus offer. Unfortunately, some of these creditors are deceptive to the point of not making this known to their prospects.
However, this would be made very clear if the prospect takes the time to thoroughly go over the contractual agreement. For this reason, never agree to a deal if you have not thoroughly gone over the fine print.
Unnecessarily Choosing Long-Term Repayment Plans
You have to be very detailed when choosing a repayment plan. This calls for understanding your ability to repay based on the amount that has to be repaid in installments.
However, it is worth mentioning that long-term plans typically cost more than short-term plans. This is even though long-term plans seem more convenient, considering how they require making low monthly payments. On this note, you are better off choosing shorter repayment plans.
Of course, this is not to say that you should settle for a short-term plan even when you know you are not capable of making timely payments. Doing so would only complicate things and even increase loan costs.
This is by triggering certain penalties due to the violation of agreed terms and conditions. So, this is about striking the right balance between long and short-term repayment plans based on your financial situation.
Failure to Make Credit Card Payments
You should do all you can to reduce your credit card debt margin until your plan to refinance is finalized. By the way, this is not just about reducing your debt margin.
It is also about protecting your credit score, which is crucial for securing refinancing loans with very borrower-friendly conditions. So, do not make tomorrow harder by refusing to do what you should do today.
Taking Out More Loans
There is no doubting the fact that refinancing is a debt. However, it is unlike many other debts, especially if you have the right motivation, as mentioned very early on. For the record, it is a tool for getting out of existing debts through improved terms and conditions.
In light of this, you should not go about taking on more debts as your focus should be getting out of your current debt situation. This is instead of continuously accumulating more debts. As a result, resisting the urge to make unnecessary purchases with your card should be one of your lines of action.
Not Tracking/Monitoring Your Situation
Regularly track/monitor your situation even after you have taken out the refinance loan. This is about knowing your progress level. Furthermore, it is about finding enough motivation to get going and get out of your credit card debt.
Not Getting Professional Advice
There is no credit card debt that one cannot get out of. However, this is not to say that it would be easy. Some debt margins are even so critical that there would be a need for professional advice.
People in this situation need to get professional advice from financial experts who specialize in offering such advice. Unfortunately, some people consider this unnecessary and only go on making more costly financial errors or even become less motivated. You can read this study for more on the importance of seeking professional financial advice.
Not Having Financial Discipline
Debt servicing can be a daunting task. This is especially because of restricted cash flow as available funds go into debt servicing.
As a result, it takes a lot of financial discipline to properly service existing debts. For example, you may have to cut down on making certain purchases by making a couple of sacrifices.
However, it is all about seeing the bigger picture as it would be worth it in the long run. So, there is the utmost need to exercise financial discipline.
Not Researching Lender’s Reputation
You should not just be about researching the details of the credit card refinancing loan offer. Of course, this is important but you also need to research the lender.
The goal is to avoid creditors that have a reputation for treating their borrowers badly. This is especially those creditors that are not willing to make compromises in the best interest of reasonable borrowers.
Wrap Up
Refinancing loans can be a reasonable pathway out of credit card debts, which has become perhaps the quickest path to debt troubles for many. However, there is a need to get the right refinance loan and properly manage it. In light of this, the details shared here should be taken very seriously.