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When you use debt consolidation loans correctly, they can really help you get your finances straight. When you use them incorrectly, they will help for awhile, but then you might find yourself in a bigger financial mess than when you started.
Using Debt Consolidation Loans the Right Way
I’ll start out with how to use debt consolidation loans the way you should. Debt consolidation loans are a great way to combine two or more of your debts into one debt and one payment. At one point, my husband and I were trying to keep track of a mortgage payment, a home equity loan, two car payments, and six credit card payments. It was a nightmare. When the offer for a debt consolidation loan arrived in the mail, we jumped on it. We were able to combine four of the six credit cards into one loan and saved about $300 every month. That $300 gave us a lot of breathing room, and we were able to get our finances under some control. This debt consolidation loan came at a time when we had decided to be more responsible with our finances, so it worked out well. There had been other times when the result wasn’t quite as positive.
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Using Debt Consolidation Loans the Wrong Way
Unfortunately, I have had more experience with debt consolidation loans than I want to think about. The problem wasn’t with the loan. It was with my husband and me. Getting a debt consolidation loan can feel so liberating. You usually have quite a bit of extra money “left over” every month with these loans and it’s easy to spend this money without even realizing it. That’s what we did with some of our earlier debt consolidation loans. When we had a little extra money, we thought it would be okay to go out to eat every once in awhile and buy a few things we wanted. We even used the balance-free credit cards we had paid off with the consolidation loan for some of our purchases. We thought it would be easy to pay off the balances every month, but it didn’t always work out like that.
My suggestion for you:
Know your financial self before you take out a debt consolidation loan. If you think you might fall into the trap of accumulating more debt after you consolidate, try to find another way to get your finances under control. If you know you’ll have enough control to resist running up more debt, a debt consolidation loan might be the way for you to go.
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