Debt Consolidation | Credit Card Debt Relief Secrets

Debt Consolidation Loans

Those who are in over their heads often seek out a debt consolidation loan. It seems like such an attractive option. You get a nice, low-interest loan and all the pressure goes away! What a great relief!

That’s because it offers immediate debt relief. It’s a happy day when you get your check and pay off all those old credit card debts. The sense of liberation is wonderful and extremely welcome.

In a heartbeat you put your old problems behind you and get on with your life. Unfortunately, most people who resort to a debt consolidation loan end up in more trouble than they started with. You simply can not borrow your way out of debt. So for far too many, debt consolidation is only a brief stop on the long road to bankruptcy.

Consolidating your debt simply means you'll be replacing multiple debts (usually from several credit cards) with a single larger loan - perhaps a home equity loan. This can make sense but there are traps - some obvious and some not so obvious. Perhaps the following will help you decide if debt consolidation is for you.

First of all, debt consolidation isn't for you unless you have the discipline required to stop using your credit cards after you pay off their balances with your new loan.

When you get your loan check, immediately call up your credit card banks and tell them of your intention and ask them to close out your credit card and not automatically re-issue it at a later day.

If you do what most people do – use the debt consolidation loan to pay off all their outstanding credit card balances and then continue to spend as they did in the past - they end up running up the balances on their credit cards again leaving them in even more debt than they started with.

After your credit cards are paid off it's not time to go running off to Disneyland, Hawaii or on a cruise, instead it's time to close out those old cards and stick to your old Spartan budget and payoff plan. You MUST change how you spend or debt consolidation isn't for you.

Why do people act so irresponsibly? It's really quite understandable as they've been restricting their spending for years due to their accumulating debt, now you get a big, fat check and the urge to splurge must be overwhelming. But it must be resisted if debt consolidation is to work for you.

Debt consolidation has the following benefits:

1. Your life is simplified by having only one payment.

2. You get instant debt relief from the pressure of bills

3. The interest rate on the debt consolidation loan is usually low

4. You save money over the term of the debt consolidation loan

5. If you use a home equity loan your interest may be tax deductable

6. Your credit rating will get a boost when you pay off your old credit card debts

But here are the potential problems:

1. If your credit rating is damaged, you probably won't be able to qualify for a low interest rate debt consolidation loan.

2. If your debt consolidation loan repayment period is a long one, you may end up paying more interest.

3. Some debt consolidation loan firms may charge hidden fees.

4. If you later are forced into bankruptcy, you may lose your home.

5. Hidden pre-payment penalties may make paying off the debt consolidation loan early expensive.

6. The debt consolidation loan process may require cancelling your credit cards.

7. You'll end up deeper in debt if you can't change your spending habits.

If you can, get a copy of your credit file a full two months before you apply for a debt consolidation loan of any kind. This will give you enough time to check it out and clean up any errors it may contain before they can damage your chances of landing the loan you need.