When debt starts to get out of control, that is when most people start to think about getting a debt consolidation loan. This type of loan takes all your bills and consolidates them into one loan and extends the amount of time that you have to pay the entire debt off. This sounds good on the surface – and it is often all that many people want to hear before they sign on the dotted line.
Once you start to think it through, however, you will see that there are a couple of problems with this type of arrangement. For one thing, while you may have lowered your interest rate – especially if a lot of your debt is credit card debt – you have actually just added a lot more debt – in the form of interest on the new loan. Since you have now extended the period of time over which the same debt is to be paid, you are now paying more – especially if it will take more than four or five years to pay it off.
Another clear problem occurs because now there are several credit cards that have no debt on them at all – just begging to be filled up again. According to CreditCardDebt, many people who use this "solution" only end up in worse debt than before within five years. The truth is that it requires a lot of discipline to not use those credit cards again. Some banks may even make closing your credit cards a requirement – in order to help you.
A possible better solution than a debt consolidation loan would be to start out trying to renegotiate a lower interest rate with the credit card companies. Then, set up a budget and eliminate everything that is absolutely non-essential to your basic daily living and use the money to pay off your debt as fast as possible. Always make minimum payments on each bill and put extra toward your smallest bill until paid off. Then tackle the next largest one, etc.