By Adriana J. Noton

When you find yourself faced with mounting debts that are quickly getting out of control, a debt consolidation loan is one option that may be suggested to you. The concept of a debt consolidation loan is simple. You take out one big loan and then pay off all your smaller debts with that one loan. Then, youll have only one monthly payment to make and your debts will be organized and under control. With a debt consolidation loan, the cost of your monthly payment should be less than the totals for the individual debts, and instead of a bunch of different interest rates youll only have to pay one. Of course, as with most things that seem perfectly logical and straightforward, there may be some hidden dangers.

Sometimes, when the interest rate of your new debt consolidation loan kicks in, youll actually end up paying more than when you paid the smaller debts. If youre looking for a consolidation loan because youre having money and credit issues, you may not be offered the lowest interest rates available. Also, if you dont have an asset like a house to secure the debt consolidation loan, you may end up paying a higher rate. Take the time to do some math and figure out the numbers to be sure youre really paying less overall.

If debt consolidation is what you really want, you can also shop around for loans, just like you would for car insurance. Different lenders may offer different rates, so look for the ones that are best for you so you dont overpay. Sometimes a credit union may offer better rates on a debt consolidation loan than a big bank will.

Self-control is another danger of debt consolidation loans for some people. The loan is intended to pay off all your debts, but sometimes the same spending habits that got you into the bad money situation in the first place will keep you there with the loan. When you get a debt consolidation loan, you havent actually cleared off your debts; youve just paid off the balances. This means you still have all that credit just sitting there. It doesnt take much for all of those zero balances to be built back up again if the accounts arent closed.

One crucial element to getting a debt consolidation loan is to see that all of those individual accounts are closed and you no longer have access to the credit. A debt solution company is sometimes a good solution for your money problems, because they can go through several different options to determine which is the best for your situation. Sometimes this may be debt consolidation or sometimes it may even be bankruptcy. At the very least they will advise you of the potential pitfalls of debt consolidation loans or even set up a program where you pay them one monthly payment and they take care of the debts for you. Either way, seeing a professional about the problem will help you stay out of trouble and find the right solution.

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