While effective, debt consolidation loans have a lot of pitfalls that you need to avoid at all cost. These usually keep consumers from completely getting out of debt. If you want to solve your debt problems and you want it through this program, then you have to prepare yourself to avoid making the mistakes that consumers usually commit.
You may be wondering, if this debt relief option has so many pitfalls, then why not just go for another program?
When done correctly, this type of debt solution has a easier clean up compared to the others. Debt settlement and bankruptcy will damage your credit score and debt management requires you to pay a service fee. Each of them have their own strengths but if you want to keep your credit score high and you wish to forego paying service fees, then debt consolidation loan is your best choice.
The key is to know what the common mistakes are and to make sure you avoid them. Here is the list of what you should be avoiding.
First of all, there is the temptation to loan more than what you need – at least if the lender says that you qualify for it. Remember that this type of debt will not reduce what you owe. What you are really doing is combining your debt under one lender by using a single loan to pay the others. If you get more than what your actual debt is, you are growing your debt further. Just loan what you need for your debts.
Another temptation is using your loan for something else other than your debt payments. If you planned on paying off your debts with it, then follow through the plan. Let someone you trust know about what intend to do so that they can help ensure that you really pay off your debts and not splurge it on another purchase.
There is also the temptation to incur more debts. The way debt consolidation loan works is to pay off your debts. If most of these debts are on your credit cards, that means they will all go back to zero. That can tempt anyone to use it again. When you use your card again, you are just growing your problems. Try not to use it lest your balance will grow again and you will find yourself in a bigger debt pit.
The easy payment scheme that debt consolidation loan provide consumers is sometimes a double edged sword. This type of debt solution requires low monthly contributions. Not only that, you only send one payment towards one lender. This gives you the false impression that your debts are not as bad as you thought it was.
That notion is incorrect. You have to realize that your debts were just shifted around. It was not reduced and it is not yet paid off. If you look at the total debt amount that you owe, it is still the same. Do not remove that from your mind so you won’t fall into the common temptation of spending all your credit cards again.