Posted by: admin in Consolidation,Debt,General,Reviews,Services on October 12th, 2014

When you’ve decided to use debt consolidation as the solution to your debt management needs, you’ve taken a big step towards aiding your debt problem. Debt consolidation allows you to group your current debts into one convenient loan, allowing you to pay a lower monthly payment than you are now at a lower interest rate. While this can be a great way to get debt under control, did you know that there are traps associated with debt consolidation loans? Many people don’t realize that the loan itself is only helping a symptom of a greater issue. Going to the source of the problem is the only way to truly get out of debt. While debt consolidation reviews is a great remedy, here are the traps to beware of that you may fall into if you take out a debt consolidation loan.

The Truth about Debt Consolidation
While debt consolidation feels like the sigh of relief you’ve been looking for, did you know that the lower monthly payments will mean your debt takes longer to pay off? Many don’t realize that these debt consolidation loans typically come with high fees as well.

While they promise to offer a lower interest rate than your current debts charge you, the debt takes longer to pay which means you’ll be paying more interest payments than you would have without the consolidation loan. It would be like having a 10-year car loan instead of a 5-year car loan. While you will pay less each month, which is beneficial to some, you’ve now added five extra years of payments and interest.

The Mistake of Repeating the Pattern
Debt consolidation can be the cure to your debt woes that you were looking for. Unfortunately, when you simply transfer your many small debts into one large debt, you may believe that the freed up credit is now your opportunity to use it again. You may be tempted to start charging those credit cards again now that the card shows a $0 balance. 70% of people who have used debt consolidation loans have ended up with as much, if not more, debt just a few years later. While these loans are supposed to help you get out of debt, many use them as a cure-all and neglect to change their own spending behaviors.

Using Debt Consolidation as a “Band-Aid”
One way to understand this concept would be to compare your debt consolidation to weight loss. The example would be if you bought a diet pill to lose unwanted weight. If you lose the weight and never change your unhealthy eating habits, you will put the weight right back on. One must adjust their mindset and behaviors while simultaneously working on repairing the current damage. If you become debt free but don’t live within your means or have a shopping addiction, you will most likely end up right back where you started once you’ve paid off your debt consolidation loan.

Losing Motivation
Since your mindset can highly affect your ability to correct your financial situation, it’s important to also note a difference in drive and motivation when you use these types of loans.

If you decided to get a consolidation loan or balance transfer for your credit card debt, then you’ll have all the debt under one loan and you’ll pay the minimum each month. If you hadn’t consolidated the credit card debt and just started paying off the cards on your own from the smallest balance to the largest balance, you might find that the motivation is higher for paying off the cards as quickly as possible when you are almost at that $0 balance on each card. Each time a card is paid in full, you would feel like you can actually see the light at the end of the debt-free tunnel and your motivation would get stronger as time goes on. Paying your monthly consolidation loan for the total of all credit card debts will not likely energize your sense of determination to pay it off as soon as possible.

Using Collateral
Many consolidation loans require collateral. When you put your house or car on the line, not keeping up your end of the bargain can leave you with a repossessed car or foreclosed home. It may seem like a good idea to take the loan by putting your home or car on the line, but you are risking your most important assets if you can’t make your payments.

Expensive Consolidation Services
People that decide debt consolidation is the route for them usually feel best speaking to a professional. Since debt relief has become such a profitable business, many debt consolidation services are going to be designed to charge you high fees in order to help you. What many people don’t realize is that the services they are providing are typically things you can do on your own. The fees they may charge you include monthly fees, up-front fees, and/or interest. You’ll need to determine if these additional costs are going to be worth it in the long run.

While debt consolidation has its pros and cons, be sure to avoid the traps associated with these types of loans and you can successfully pay off your debts with the right approach.

Debt Consolidation Service