Debt Consolidation Benefits

• One monthly payment instead of many reduces the complexity of your financial life as you only have to track and pay one account. This lessens the chances of accidentally paying a bill late because you have to keep up with so many different accounts.
• A lower interest rate means you will save money in the long run as you will be paying less interest on your debt and your monthly payments should be reduced.
• A smaller monthly payment means more money in your pocket each month. If you are on a tight budget or struggling to keep up, this benefit alone makes debt consolidation appear worth it.

Debt Consolidation Drawbacks

• More disposable income can lull you into a false sense of security. With the debt consolidation loan lowering your payments to the point that you actually have a little money to spend you can begin to feel as though you aren’t in bad financial shape.
• Empty credit accounts that were paid off with the proceeds from the consolidation loan can prove to be to strong to resist for many. The whole I’ll just charge this new iPhone because I have to have it and I’ll pay it off when the bill comes is how you likely got into trouble in the first place.

Is It Really Just Delaying the Inevitable?

In many cases it is. Even though the benefits outnumber the drawbacks, and the two drawbacks at first seem to be benefits, for many people in financial trouble the consolidation loan doesn’t treat the core problem.

If you are in dire straits, you most likely got there as a result of a lot of bad financial decisions made over time. Giving you a lower debt payment and empty credit accounts  only treats the symptoms and not the root cause, which is your lack of ability to handle your finances that got you in a financial mess in the first place.

People who consolidate their debt often wind up with the consolidation loan and credit cards that are maxed out again, effectively doubling what they owed before the consolidation. In fact, most money management courses will tell you to stay away from consolidation loans until you have spent a couple of years adhering to a strict financial regimen to prove that you are able to handle your finances before applying for a consolidation loan.

If you find yourself in debt due to illness or job loss, then debt consolidation may make sense for you if you have sound money management skills. The loan may make the difference between going under and making a full financial recovery.

Only you know which camp you fall in, so make a smart decision because your financial future hangs in the balance.

Photo by eric731

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1. How NOT To Get Screwed on a Debt Consolidation Loan
2. The Dark Side of Debt Consolidation
3. Is Credit Card Debt Consolidation the Right Move?

Debt consolidation and bankruptcy are two options available for those who are deeply in debt.  However, is one option better than the other?  Which option is right for you?

Debt Consolidation

Debt consolidation is a tactic where a debtor takes out one loan in order to pay off many other smaller loans. This might be a good option and there are some very good reasons for doing this.

• Lower Interest Rate

It is possible to secure a new loan with a lower interest rate. This could save money on interest payments.

• Lower monthly payments

With a lower interest rate, it is possible to lower the total required monthly loan payment.

• Pay down the debt faster

With a lower monthly payment, the money saved could be used to pay down the                  debt earlier.

• Save on late fees

Since only one check is written each month instead of many, it is possible to manage your money better.  The chances of forgetting to mail bills are less and there will be smaller chance of being subjected to expensive late fees.

While there are many benefits associated with debt consolidation, there are also some downfalls attached to it also.

• The loan may require collateral

In order to secure the loan, something of value may be required in order to obtain it.  If this is a house, this may make it more difficult if you plan to sell.

• Debt consolidation loans may be difficult to get approved

If your debt is high, and it probably is, along with a marginal credit score, it may be hard to get your loan approved.

• There may be a fee included in the consolidation loan

This may not be a free pass and many companies may build a costly fee into the loan.

Bankruptcy

There are many negative connotations associated with declaring bankruptcy but, for someone who is hopelessly in debt; this may be their only option.  What can bankruptcy do for you?

• It eliminates debt

By filing for bankruptcy, either Chapter 7 or 13, most debts will be eliminated.

• Creditors will stop calling

By law, creditors must stop all collection activities against a debtor once bankruptcy has been filed.

Bankruptcy may look attractive on the surface but, before following through, it is wise to look at the disadvantages that are involved.

• It affects your credit rating

Since a bankruptcy remains on your credit report for ten years, it will have an adverse affect on your credit rating.

• Acquiring new credit may be difficult

Depending on the lender, acquiring credit after a bankruptcy may not be easy.

Where to Turn

Since each financial situation is different, it is necessary to analyze each situation separately.  Locate a credible, experienced, and competent credit counselor to help you. They will be unbiased and will offer you an objective opinion. Credit advisors will also be able to offer advice on both debt consolidation and bankruptcy but, ultimately, the decision is yours to make.

The important thing here to remember is to not give up and to be proactive.  Work to resolve your financial troubles because there are options available that can help you.

Photo by Daniel Y. Go

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1. 10 Steps To Avoid Bankruptcy
2. The Dark Side of Debt Consolidation
3. How NOT To Get Screwed on a Debt Consolidation Loan

Why should you bother Refinancing?

Most people understand that by receiving a lower interest rate, they can save a little money on their home loan; however, the savings available can be greater than expected. Let’s work through the math: consider an existing home loan with these terms.

• $150,000 outstanding balance
• 5.95% annual interest rate
• $1,000 monthly payment
• 23 Years until paid off
• $125,290 in interest over the life of the loan

At this rate, the total interest paid by the end of the loan will amount to $125,290— nearly the entire value of the loan! However, we can reduce this cost by refinancing to a cheaper loan. Let’s revisit the same home loan, but apply figures from a refinance deal at a 5.4% annual rate:

• $150,000 balance
• 5.4% annual interest rate
• $950 monthly payment
• 23 years until paid off
• $2,500 in fees and additional expenses
• $114,700 in interest and fees over the life of the loan

By refinancing to a loan that is .55% cheaper, you are able to pay $50 less a month and still save just over $10,500 in interest payments; this even includes the fees you will incur from switching. You can use FIDO’s online multi-loan calculator to check these figures, or compute how much you may able to save on your own home loan by refinancing.

How To Get The Best Rate

While your current home loan lender may approach you with a refinancing deal, be careful before blindly accepting the offer; there may be even better rates available elsewhere. Some ways to ensure you get the best rate are:

• Compare rates from your current lender against rates from new lenders to find the cheapest available rate
• If you find a rate lower than your current loan rate, ask your current lender if they can match that rate to keep your business
• Ask the lender if you qualify for any special rates or fee waivers (it will help to have really good credit or history with the lender)
• Ask a new lender if they can waive their application and other fees in order to gain your business (again, great credit will help)

Things To Watch Out For

When you refinance your home loan, you may be subject to various fees and unexpected expenses. These fees could come from both the old loan contract and the new one. When considering refinancing your home loan, you need to understand that:

• Some home loan provisions will have a break-up fee or termination charge if you end the contract early and refinance with another lender.
• You also may face some administration and application fees for your new loan, so beware of the extra fees that may reduce the attractiveness of refinancing.
• The extremely low rates from other lenders are often teaser rates. Be sure to examine how long these low rates last, and what the full rate will be when it comes into effect.

FIDO also has a list of steps for switching your home loan to see if a refinancing deal will benefit you.

In Conclusion…

By applying these tips and warnings to your search for a home loan refinance, you may be able to save thousands of dollars over the life of your loan. Keep in mind that there may be switching costs, and the lower rates may only be a teaser rate. Be on your guard and ask questions; this is the only way you can gain the information you need to make the right decision about refinancing your home loan.

Photo by slight cutter

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1. 10 Ways to Get the Best Interest Rates on a Loan
2. What You Need to Know About Home Equity Loans
3. An Introduction to the First Home Buyers Grant

The Pros

• Lower Monthly Payment – This is the line that hooks most people to the idea of credit card consolidation. If you’re paying $1000 per month, and a company offers you $500, it’s hard to not think that’s a great deal.

• Lower Interest Rate – Especially if you’re going with a secured loan, debt consolidation can give you a much better interest rate on your debt. With a secured loan, you will use your house, car, or bank account as collateral.

• One Monthly Payment – Instead of paying various creditors, you will only need to worry about paying one. It’s easy to keep track of payments and hard to forget about.

The Cons

• The Risk of More Debt – When you choose to consolidate your credit card debt, your burden of debt may feel lighter. Because you feel less burdened by debt, you may be more likely to using your credit cards again, and dig yourself deeper into debt.

• Lose Your Home or Car – If you used your home or car as a security, and find yourself unable to pay back your loan, you can lose your personal property. Be careful, many debt consolidation loans are in fact home equity loans.

• One Monthly Payment – If you have a credit card debt with a higher interest rate, it may be best to pay that off sooner than those with lower interest rates. However, when you consolidate your debt, you cannot accelerate the payoff of one credit card over the other.

• More Money In the Long Run – Although many debt consolidators promise to lower your payments by significant amounts, you term of payment may lengthen. When all is said and done, you could end up paying more.

• You Can Do It On Your Own – Debt consolidation companies are middlemen between you and your debt. Instead of paying them on average 10% of your monthly payment, not to mention the enrollment fees, you can direct that cash toward the debt.

What Does It All Mean?

Debt consolidation may seem like the easiest solution to your problems, but at the end, it’s actually just another gimmick that profits off of you. Consolidation does not remedy the problem, it actually makes your debt worse. If you use a debt consolidator, you are paying them to hold your money for a period of time until your credit card companies give up hope of ever seeing their money from you. Then, the consolidator negotiates a deal with your credit card company, who inevitably accepts. In the meantime, your credit rating lowers. Worse yet, creditors may show derogatory information about you on your official credit score, further damaging your good standing.

For those who choose to use home equity loans, understand the risks before making the leap. Any unforeseen event (an unexpected pregnancy, an illness, a layoff) can throw off balance your carefully orchaestrated finances, leaving your house at risk. If you must take out a secured loan, consider using your car as collateral. Although no one wants to end up in the worst case scenario, it’s cheaper to replace a car than a house.

Photo by Andreas Rueda

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1. Is Credit Card Debt Consolidation the Right Move?
2. How To Tackle Credit Card Debt
3. Borrowing From Friends and Family – The Pros and Cons

Perpetual credit card debt is an affliction that haunts consumers around the world. While the theory behind credit cards sounds simple—buy things now and pay later—many families are often led into financial ruin because they are unable to manage their debt properly.

For some, it may be better to never even own a credit card at all. Paying for everything with cash seems to chase all debt worries away. However, if you are already drowning under your credit card debt, you need a way to systematically attack the debt. Since “money problems” are the most common things for couples to fight over, eliminating your debt may save your sanity as well your money.

The Solution—Debt Snowball Method

While some people may be able to pay off their debt without a specific plan, the majority of us need to take a systematic approach to eliminating our debt. One of the most effective ways is the Debt Snowball method propagated by Dave Ramsey, a popular syndicated personal finance author and radio host based in the United States. The list below is a step-by-step guide on how to systematically pay off your credit card debt the Dave Ramsey way:

1. Assemble a list of all of your debts, arranged from smallest to largest
2. Continue to pay the minimum payments on all debts except for the smallest debt. For this one, apply all the money you can find to tackling this small debt. Pay as much as you can per month to get rid of this nagging bill.
3. Once you have paid off the smallest debt and won your first battle, take the money you were applying to the smallest debt and use it to attack the next largest debt, which will now be your smallest.
4. Again, continue to pay as much as you can on the new smallest debt, while paying minimum payments on the others. Each time you pay off one bill, you will be able to apply more and more to the next debt. This is where the debt snowball method gets its name— the amount of money that you apply to each debt grows and grows like rolling snowball picking up more snow.
5. Continue the debt snowball until you pay off all of your debts. Then, switch the snowball focus from paying off your debt to investing. By the end of this step, you should have your debts paid off (except for maybe your house) and be investing every month.

Another, very similar approach is to pay off your credit card debts according to the interest rates. However, while this may save a little money in the long run, it is often more difficult to get started when the highest interest rate debt is a very large one. Many people feel like they are not achieving anything and decide to quit. By implementing the debt snowball, you can see fast results and get the psychological motivation to continue!

Quick Tip

One way to achieve results even more quickly is to engage in debt negotiation. By working with your credit card company, you may be able to pay off only a percentage of the total debt you owe. Read here how to engage in Do-It-Yourself Debt Negotiation.

The Catch

Of course, going through all these steps won’t help you in the long term if you don’t change your spending habits. The key to becoming and staying debt free is to understand the risks involved with credit cards, and how to use them wisely. After you eliminate your debt, be sure to understand how you got into debt, and how you can stay out by altering your current spending patterns.

Photo by Andreas Rueda

Related posts:

1. Is Credit Card Debt Consolidation the Right Move?
2. The Pros and Cons of Consolidating Your Credit Card Debt
3. How to Make Your Credit Card Debt History

* “Debt relief is just a phone call away!”

* “Stop paying your debts today!”

* “Erase your high interest rate! Call now”

Every year, millions are lured in with high hopes. And it’s easy to understand why.

With so many individuals now carrying high credit card balances, never before has the prospect of credit card consolidation appeared more appealing. Yet, despite the glorified status lenders have bestowed up them, credit card consolidations can quickly turn a financial problem into an irrevocable financial crisis.

The promised “quick fix” of debt consolidation is powerfully tempting. But the slippery slope of consolidation loans can introduce a variety of other threats to one’s fiscal health.

Among the gravest dangers:

Small Fees Become Big Expenses

Consolidating debt isn’t free. And the costs (hidden or straightforward) can be significant. Securing a new loan or consolidating old ones may not only incur administrative and processing fees, you may also be penalized for paying off your balance early (assuming, of course, that you could). Even worse, consolidation loans are frequently secured against one’s home, which subsequently leads to legal fees and a host of other ancillary expenses. There is no shortage of “small fees.” When totaled, it’s a heavy price tag for credit card consolidation.

The Balance Transfer Catch

Balance-transfer opportunities are a dime a dozen. And although they work for the short term, zero or low rates only last for a limited period of time. If you think you can repay the full balance during that time but ultimately can’t, you may soon end up paying a higher rate on your outstanding debt than you were before the consolidation.

Stranger Danger with Debt

As children, we were frequently told never to talk to strangers. Some credit lenders should have been included in those maternal warnings. Because numerous debt consolidation providers make substantial commission on balance transfers and loan consolidations, there is no shortage of misleading advocates for consolidation trying to squeeze even more money from your pockets.

The Risk Factor

Taking out consolidation loans or having to switch balances back and forth leaves a blemish on your financial history. After a substantial amount of this sort of activity is recorded, it will portray your financial responsibility in a negative light and leave you a “high-risk” candidate for financial products and services in the future.

Does Credit Card Consolidation Make Sense For You?

It depends.

If anything is easier to get into than debt, it’s more debt. And, without exception, this is ironically the gravest danger posed by credit card debt consolidation.

Unlike a debt consolidation loan, which is typically secured debt, credit card debt itself is unsecured debt. Once your present balances are consolidated through a loan or multiple balance transfers, your remaining credit cards return to having a zero balance with ready access.

If that zero figure remains unchanged throughout your entire repayment process on consolidated debt, it might be in your best interest to seek a credit card consolidation opportunity. If, however, you have any inclination that you will soon max-out your credit cards again and abuse your consolidation process as a renewed license to spend, avoid this financial alternative at all costs.

Photo by danesparza

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1. The Pros and Cons of Consolidating Your Credit Card Debt
2. How To Tackle Credit Card Debt
3. The Dark Side of Debt Consolidation

First, Count Up Your Total Indebtedness and Monthly Income

If you do not already know how much indebtedness you have, not counting your mortgage, then you need to sit down and total up all your debt. In addition, you need to find out how much total income you have – after taxes. This will show you what kind of money you have each month once you subtract monthly bills from monthly income. If your income is less than your monthly debts, then you will need to act quickly to make some immediate changes.

This prospect might seem a little daunting, but it’s really not all that difficult. You can do it old-school, with pen and paper, but I prefer the mod cons, so I use a budget planner spreadsheet. Get a ready made one here, as well as instructions on how to get it working (it’s an American site, but the info is good for Aussies too).

Consider Your Debt Reduction Options

If you have a lot of credit card debt, and not other kinds, then you may be able to obtain a new balance transfer credit card. This kind of credit card is valuable to you if:

• You do not put new charges on the old cards
• You are able to transfer debt without charges – or minimal charges
• You will reduce your charges as fast as possible while you have 0% interest.

Consider a Debt Loan

Taking out a debt consolidation loan to pay off your other loans can be a very good idea, although it will not work to everyone’s benefit. It will help you if:

• Your current loans have high rates of interest.
• You can get a lower interest rate and longer terms.
• You have an income that will enable you to meet payments comfortably.

In order to be considered for a debt consolidation loan, you will find that a lender will more readily work with you if you have some assets – a secured loan. Secured loans are obtained more readily because there is some collateral behind it. Don’t forget about the possibility of refinancing your loan, too.

Let Debt Consolidation Work for Your Lasting Good

Getting a new loan for debt consolidation will work best for you if you will work to pay it off as quickly as possible. Doing so will help raise your credit score if it has been hurt because of the debt and missed payments. Ideally, you would want to get a debt consolidation loan before that happens.

You want to avoid letting this new loan take its full course. It is to your advantage to pay it off quickly in order to avoid as much interest as possible. This will enable you to get out of debt quicker and enjoy the freedom of being debt free again. Debt consolidation loans work best if the end result you seek is total debt elimination. Anything less should not be looked at as a lasting solution.

Talk to Debt Counselors

Most people probably do not need to talk to debt counselors, but in some cases it will be necessary. This may be an especially good idea if:

• Your debt exceeds your income
• You have no idea what to do
• You do not handle money well
• You are considering declaring bankruptcy.

You can get the help with your debt that you need. The first step is to see where you can comfortably reduce your monthly expenses and put that money toward your existing debt. Oftentimes, with good money management and a tightening of the belt, you may be able to slim down your budget and eliminate debt on your own – although it will not happen overnight.

Photo by restlessglobetrotter

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1. The Dark Side of Debt Consolidation
2. Is Credit Card Debt Consolidation the Right Move?
3. What You Need to Know about Personal Loans

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?

First, let’s define a secured loan.

A secured loan is a loan backed by collateral, which is a property pledge to insure repayment of a debt. The bank or other lender puts a lien on a piece of property equal or greater in value than the loan.

For instance, in the case of a car loan or mortgage, the car or house is the collateral. In other cases, a borrower puts their house up as collateral in order to get cash for home improvements, furniture, or even to pay off other debt. This is a called a Home Equity Loan or a Home Equity Line of Credit.

While a lender may not be willing to lend such large amounts of money through an unsecured personal loan, a secured loan decreases the risk to the lender. It sounds like the perfect solution to buying a new car, new home,  investment property, or even your child’s uni fees.

People often get secured loans for:

- Houses (in the form of a mortgage)
- Cars and other vehicles
- Certain business equipment, such as farm equipment
- Land
- Home improvements
- To pay off non-secured debt

Benefits to Secured Loans

Secured loans, because they are a lower risk to the lender, typically have much lower interest rates than personal bank loans. For someone carrying a lot of high-interest credit card debt, a home equity loan can consolidate credit card debt into one easy home equity loan that is paid every month.

Unlike the minimum payments on credit cards, a home equity loan payment does not change each month. The borrower will see their debt go down with each payment, and know there is a definite end to the loan. For many people, a home equity loan provides a way out of debt. For some, it seems to be the only way.

Drawbacks to Secured Loans

A secured loan protects the lender, but can put the borrower at great risk. In today’s economy, largely sparked by the mortgage crisis in the U.S., lenders all over the world (including Australia!) have become more conservative. They hesitate to give even secured loans to borrowers who don’t have a good credit history and can’t show the means to pay the loan.

Certain types of secured loans pose a greater risk than others, including:

- Debt Consolidation Loans
- Interest-only mortgages
- “Honeymoon” (Introductory) rate mortgages
- Split-rate mortgages
- Car Loans

Whatever type of loan, whether it’s a car loan, mortgage or debt loan, the risk to a secured loan is that if the borrower can’t pay, he loses the collateral. In the event of a car loan, failure to make payments can result in re-possession of the vehicle. If the vehicle is worth less than the amount of the loan, the borrower may lose their car and still owe the bank money.

In the event of non-payment of a mortgage or a home equity line of credit, a borrower may lose his house to foreclosure.

The greatest risk exists when someone takes out a home equity loan or line of credit against their house to pay off non-secured debt. With credit cards paid off, the borrower may begin using them again, creating an endless cycle of debt. As minimum payments on the cards grow larger, the borrower may not be able to pay his home equity loan, either.

Using your home as collateral to pay off debt may seem like a smart choice, but be careful. If it is the first step to a debt-free lifestyle, be sure to stay on that path.

Be careful with secured loans. They may seem like a good idea to get out of debt, but think about the collateral at stake if you can’t afford to pay.

Photo by benprks

Related posts:

1. Secured Debt Vs. Unsecured Debt
2. What You Need to Know About Home Equity Loans
3. The Debt Loans Survival Guide

Who Needs a Debt Consolidation Loan?

Debt consolidation loans are primarily intended for individuals or families struggling to manage any form of outstanding debt:

• Credit card debt
• Personal loan debt
• Mortgage or housing debt, etc.

Despite sounding like a highly attractive option that, based on incessant advertising, seems widely available, obtaining a quality debt consolidation loan can be more difficult than one would expect.

Why?

Let’s face it, how many legitimate lenders want to invest in someone who has already gotten into such a tremendous financial predicament? As result of the difficulty born of getting an established, trustworthy company to issue a debt consolidation loan, many desperate borrowers unwittingly find short-term comfort and long-term pain in shady lenders that eventually lead to even more financial problems for down-and-out debtors.

Unfortunately, there is no shortage of surprisingly common debt consolidation mistakes that borrowers make when in the market for this particular financial product.

Avoiding The Dangers of Debt Consolidation

• Hidden Fees. Debt consolidation loans can often be packaged with exorbitant hidden fees and administration costs. Apart from the interest rate you secure, which may depend in large part on your financial history, there are typically processing fees, monthly service fees, and even a fee for each payment sent to your creditors. There is also a vast fleet of companies that actually charge a penalty for paying off your balance early. Be sure to read the fine print and know that every cent you provide pays off more of your debt than your loan provider’s “administrative fees.”

• Old Habits Die Hard. A debt consolidation loan can reduce the onerous process of paying multiple creditors every month. Unfortunately, many confuse a debt consolidation loan for a new beginning. In reality, your debt remains unchanged. Yet, because previously maxed-out credit cards and other lines of credit are now reduced to zero, without great caution, a reckless spender could soon find himself in an even worse position than before – with a debt consolidation loan and a new batch of bills created outside of it. Securing a debt consolidation loan is anything but a license to spend again.

• Trust But Verify. There are thousands of debt consolidation companies that want your business. Many should be avoided like the plague. How do you know which are legitimate, credible agencies? You won’t without conducting adequate research. Never, under any circumstances, take a company’s counselor at his or her word. If they claim to possess any licenses or registrations for conducting business, ask to see them. Apart from shopping around for the best financial arrangement possible, it is doubly important to double check everything you’re told and everything you read so that you know exactly how your debt consolidation process will play out in full.

The Most Important Lesson

Ultimately, no matter how successfully one sidesteps the common pitfalls of debt consolidation, what guarantees that a first loan of this nature will also be the last is seriously addressing the situations, lifestyles, or issues that led to the need for a debt consolidation loan in the first place. At the end of the day, it is just as important for the debtor as it is the creditor to take accountability and responsibility.

Photo by shoothead

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1. The Dark Side of Debt Consolidation
2. Is Credit Card Debt Consolidation the Right Move?
3. Debt Consolidation Services: What You Need To Know