Debt consolidation loans, while an effective debt relief program, is still riddled with a lot of pitfalls. You need to be aware of these risks so you can avoid them and establish a more successful program for yourself.
But before we discuss pitfalls, let us talk about what is involved in debt consolidation loans. The whole idea is to get a loan that is big enough to cover all your other debts. When you are approved of the loan, you will pay off the other debts and will concentrate on this one loan.
This debt relief program does not involve a professional to help with your efforts. No one will help you create a payment plan but yourself. You will be in charge of sending payments and making sure that it is kept updated. All of these responsibilities will fall on you. That means you have to be vigilant so you never slip up and suffer any late payment fees. This is one of the pitfalls that you have to avoid. You need to keep your commitments and one way to do that is to create a payment plan. This also includes a budget plan. Both will help you view a general picture of your income, expenses and loan payments. You will be able to keep tabs on when a payment should be made and how much should be allotted every month.
Another pitfall that you have to be aware of is the fact that all your credit cards will not be back to zero. Since you have paid them off, the temptation to use your cards could even triple. If you are not aware of this danger and you succumb to the temptation, you will end up growing your debt further. Instead of paying it off completely, you will make matters worse. You need to do something about your cards to make sure you will not fall into this pit. If that means you have to lock up your cards, then that is what you should do. Make sure it will be difficult for your to get it so you will think twice about using it.
In connection with that, another pitfall that you can get into is the false assumption that your debts are not as bad as you thought. Paying off your other debts with the new loan you got will give you a feeling of debt freedom. The ease that the single loan payment provide can also allude you into thinking that you have solved your credit problems already. That is not true. You just shifted your debts around but the balance is still the same. You still have the same amount and although your monthly payments may be lower, the same obligation to pay it off is still there.
Bottom line is this: when you choose debt consolidation loans, you have to understand that the responsibility is not diminished. All it really takes is your attitude and your commitment to the debt relief program to make sure that you can avoid the pitfalls we discussed here. Practice proper financial management in paying off this new and substantial loan and make sure you develop the right habits that will keep you out of any more credit problems.