Learn About Debt Consolidation Problems

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You've probably heard the commercials on the radio or television about the ease of debt consolidation. The advertisements make it seem as if debt consolidation is easy and a good way to get out from under your debt.

It seems as if the consolidator will fix all of your money problems with a few phone calls, will prevent collection phone calls, and all you will have to do is make one small monthly payment. The reality is that debt consolidation is hard to do and there are consequences if you fail to achieve your goals.

Think of debt consolidation as taking all of the money that you owe and adding it up so that you have one giant loan rather than several smaller ones. The interest rate on the new loan is usually smaller than the rates that you were paying on the smaller loans, which is why your monthly payment is lower. Debt consolidators claim that they can reduce the amount of your debt, but this may not really happen. Creditors in this uncertain economy are less likely to wheel and deal on money owed to them and would prefer to wait and see what you are really capable of paying.

A debt consolidator cannot prevent your creditors from calling you about delinquent payments. They can and do add a not to your credit report that you are working with them to reduce your credit, but because a consolidator is not a lawyer, creditors do not have to stop trying to collect their money. If you contract a lawyer to handle your debt consolidation, then the creditor must cease collections calls to your home.

If your debts are consolidated, work very hard at paying off your bill. Do not look at your new lower monthly payments as a windfall. Remember how you got into debt in the first place and stop using your credit cards. If you must buy something, use cash.