How to Prevent Derailing Your Debt Consolidation Efforts by Avoiding Common Mistakes

Spending sleepless nights after having spent far too much on using credit cards is a part of the American way of life. According to that quotes a Consumer Financial Protection Bureau (CFPB), Americans clocked up $1.03 trillion in spinning credit balances, the greater part of which are retail and credit card balances. According to the American Bankers Association, close to 44% of all the credit card accounts are not paid in full every month leading the holders deeper into debt with every passing month. If your efforts to cut back on your lifestyle has not worked as much as you had expected and you are facing a mountain of debt across multiple credit cards, it is time that you tried consolidating your debt to avoid the misery of having to face an endless stream of debt collectors and eventual bankruptcy.

Debt Consolidation Explained

When you have multiple debts like outstanding balances on a number of credit cards, it can be very difficult to keep track of them and remember to pay the minimum due amount by the pay by date. Missing a payment can attract a steep fine and add to your financial woes. If you do not have enough money to pay even the minimum amounts then the problem is more serious and need immediate attention because you will end up damaging your credit score to such an extent that you may find access to credit very difficult indeed in the future. Debt consolidation is a simple process by which you take out a new loan to the extent of all your credit card and other unsecured loans so that you can pay them off and wipe your slate clean. You are left with only the debt consolidation loan to pay off in equal monthly installments. Depending on your credit score, debt consolidation loans will usually be far more affordable because they carry a rate of interest that is typically far less than the average credit card APR.

The Benefits of Consolidating Your Debt

The most significant benefit of consolidating your debts is that you reduce your interest expense quite significantly due to the lower rates of interest applicable to debt consolidation loans. The actual savings that you are able to achieve depends on how good your credit score is and what is the best rate that you can get a lender to agree. Debt consolidation is also an opportunity for restructuring your debt as you can choose to pay back the loan over a longer period of time thus lowering the monthly amount payable. Your credit score will also improve gradually as you have wiped off the credit card balances and are no longer missing payments on the new loan. Additionally, assuming you are not using your credit cards again, the credit utilization ratio will have come down to zero and this will give a further boost to your credit score. Another significant benefit of debt consolidation is that you will no longer feel as stressed out as before trying to juggle a number of credit card statements and pay by dates.

Top Reasons Why Debt Consolidation Does Not Succeed

Failing to appreciate that it does not reduce the amount of debt

Just because you have reduced your credit card balances to zero, it does not mean that you are free from debt. The debt consolidation exercise just eliminates multiple debts and leaves you with one single large debt that you need to pay back to the lender.

Not checking out the debt consolidation company

It is vital that you check out the credentials and the reputation of the debt consolidation company that is extending you the loan because there are many unscrupulous companies who are simply waiting to rip off the unwary customer. Some of them will ask for fees and charges by various names for processing your application and will have you running in circles and not disbursing the loan at all. The money you will have paid to them will not be returned to you. There are still other companies that have stuff hidden in the fine print of their agreements that will have nasty surprises springing out when you are repaying the loan that can add to your costs. Established and reputed lenders like National debt will never ask for advance payment and will instead work with customers to help them out.

Not addressing the root of the debt problem

You need to identify the reasons for your debt because otherwise, you will be in the same spot as before. Generally, credit card debt is due to a profligate lifestyle, which will need to be curtailed drastically so that you live within your means. By conducting a proper analysis of your spending habits, you will be able to identify the activities you spend the maximum and take appropriate steps to cut them down.

Not verifying your credit reports

The rate of interest that you will be able to get on the debt consolidation loan will depend on your credit score to a large extent. This makes it very important for you to check out the credit report from all the three leading credit bureaus so that they do not contain errors that will make the new loan difficult to get on reasonable terms. In case there are any errors, you should report them right away and have them rectified before applying for a debt consolidation loan.

Leaving out some high-interest card balances or debts:

Debt consolidation can only be done on unsecured debts and you need to make sure that you have included all the debts that are carrying a high rate of interest for the maximum benefit to accrue. Even when using a zero percent balance transfer offer by a new credit card, it is important to transfer all the high-interest rate card balances to that account so that you get the maximum savings.

Not Considering Debt Consolidation Costs

There are quite a few methods of consolidating your debts like a debt consolidation loan, credit card balance transfer, home equity loan, etc. Apart from the rate of interest, each of the methods has its own processing and other costs that can significantly affect the total cost of consolidating the debt. This makes it very important to consider carefully all the available options so that the one with the least cost can be chosen.


Getting out of a debt trap can be quite difficult unless you are determined to get rid of it once and for all. Debt consolidation is the first technique that you should try because it really is the easiest even though there are a lot of companies waiting to scam you. Approach the exercise with a lot of caution and common sense and you can’t go wrong. To make it a success, you will, however, need to make alterations to your lifestyle; otherwise, you will again land up in debt once more.

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