The road to debt consolidation always leads to one of two outcomes.

Either your financial burdens will lighten, or they will reach a newer, more crushing weight too difficult to withstand.

Very few people who pursue debt consolidation end up in the middle.

Such extreme results are common with debt consolidation. And finding yourself on the downside of the process is, unfortunately, much easier than breaking free of nearly insurmountable debt.

Debt consolidation is based on a simple principle. Rather than issuing multiple payments each month to multiple creditors with whom you owe substantial sums of money accruing equally substantial interest, debt consolidation amasses all debts owed into a single bundle tagged with a lower interest rate and customized to allow for smaller payments over a longer period of time.

In theory, this arrangement sounds like a terrific opportunity. And while it can be under the right conditions, many individuals who pursue a consolidation opportunity quickly discover the dark side of debt consolidation.

The Concerns with Consolidation

Despite heavy media campaigns to engrain the opposite message in our collective psyche, debt consolidation loans offer no immediate, universally advantageous, or guaranteed win-win situation. Of the many potential drawbacks to obtaining a consolidation loan, some are more persistent and perilous than others.

• Obtaining a debt consolidation loan (i.e., continuing the practice of borrowing) usually does little if anything to curb overspending, the problem that got the borrower in trouble to begin with.
• Consolidation loans, ironically, can be exceptionally more expensive than the debt they are supposed to help repay.  Because of hidden fees, early repayment penalties, and administrative expenses, obtaining a consolidation opportunity could prove a costly decision over time.
• Debt consolidation has become an industry comprised of many unscrupulous representatives that thrive on people who are prone to financial miscalculations and are taking up yet another loan to battle back against previous debts. In this regard, consolidation loans often serve to merely perpetuate a worsening cycle of debt.
• A high percentage of consolidation loan recipients use their loan to pay off credit card balances but once again max out their various lines of credit before their consolidation loan has been fully repaid.

Although there are myriad steps one can take to reduce their chances of having a negative experience in debt consolidation (shopping around for a competitive loan and rate, checking loan providers for a history of integrity, etc.), the most advantageous aspect of delving into the surprisingly complex and confusing world of debt consolidation is having a learning experience of a lifetime.

Whether it works for you or not, the process of researching (and potentially securing) a debt consolidation loan will, if nothing more, prove an invaluable education in capable money management.

With a proper understanding of skilled financial stewardship, a debt consolidation loan can be an effective, minimally dangerous tool useful for correcting financial transgressions and crises of the past. But it remains vitally important to use any consolidation opportunity to change your money management techniques in order to avoid becoming one of the seven in ten who still remain in debt after repaying their consolidation loan.

Photo by Chris Isherwood

Related posts:

1. Is Credit Card Debt Consolidation the Right Move?
2. How NOT To Get Screwed on a Debt Consolidation Loan
3. Would a Debt Consolidation Loan Just Be Delaying the Inevitable?
4. Debt Consolidation Services: What You Need To Know
5. The Debt Loans Survival Guide