Debt consolidation can do a few different things for people.  It can group all the debts into one lump sum, making the bills easier to pay each month and maybe even wind up costing less in interest payments over time.  Unfortunately, another thing a debt consolidation loan can do for people is free up available credit for them to go crazy with, resulting in even more debt.

In theory, debt consolidation is a great idea.    A lender pays off all the consumer’s bills and lumps them into one loan.  Instead of sending out twelve different checks to twelve different creditors a single payment is made.  Consumers feel empowered and relieved to have all the debt under one lender, and psychologically there can be a feeling of accomplishment as though the debts have been paid off instead of shuffled around.  The problems arise, however, when the consumer does not change the behavior, which racked up all the bills to begin with.  If the credit card balances are all paid off, but then the credit card accounts are not closed, this can be a recipe for disaster.  This whole situation can result in the person using all the credit cards again, maxing the cards out, and then winding up right back where they started before the consolidation happened.  The only difference is that this time there is the consolidation loan payment to contend with.  This forms a brutal cycle that will likely end with a person simply not being able to afford all the payments.  After all, there are only so many consolidation loans a person can be approved for before creditors start saying no.

Yes, debt consolidation can be a smart move, but only if done correctly.  A consolidation should not be done simply as a means of getting finances in order; that is, if the loan isn’t going to be at a lower interest rate than the existing bills are then it isn’t worth it.  Sure, it is appealing to only have one loan, but at what cost? Ease of payments can be achieved in other ways, like automatic bank withdrawals and online bill paying.  Don’t accept a consolidation loan offer just because it seems easier.  Make sure the interest rate is desirable.  Don’t be lured in by low interest home equity consolidation loans unless this is a last resort; yes, it may seem very appealing to put all your debt under the umbrella of a tax deductible loan, but remember that this is all tied to your home.  If you can’t pay a credit card, annoying creditors will hound you over the phone and through the mail.  If you can’t pay a home equity loan, though, they’re going to come and foreclose on your home.  Think long and hard before accepting a loan of this nature.

After accepting a consolidation loan the next crucial step is to methodically close every single credit line that has been paid off by the loan.  Simply tucking the credit cards away in a lockbox for emergencies rarely works, because the credit cards have a nasty way of weaseling themselves out of the box and back into the wallet.  Close the accounts, shred the cards, and don’t accept the offers the companies will undoubtedly present.  Many companies will offer lower interest rates or higher available balances when a consumer attempts to close an account.  These are merely attempts by the credit card companies to retain customers, and many times they are very effective ploys.  Debt consolidation, however, is certainly not going to work if the paid off credit lines are suddenly resurrected, especially with higher available balances. 

In order for a debt consolidation to be successful a borrower needs to be dedicated and steadfast.  Ridding yourself of high interest credit card debt can be a freeing experience, but the exuberance will be short lived if changes aren’t made with spending habits and the way which bills are paid.  If the eventual desired outcome is to be debt free, and you’re willing to stop acquiring credit and pay everything off with a vengeance, then consolidation can certainly be an answer for getting out of a financial mess.  You may even save some interest payments while you’re at it.

Related posts:

1. Debt Consolidation- Help or Hurt Your Credit
2. A Few Ways To Get Unsecured Credit Card Debt Consolidation
3. How Credit Card Debt Consolidation Services Really Work
4. Credit Card Debt Consolidation Loan: Your Best Bet To Manage Insurmountable Credit Card Debts
5. Debt Relief Consolidation May Not Be Financially Viable

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