What NOT to Do: Debt Consolidation without Shopping Around

December 12, 2011

Lessons in What Not to Do with your FinancesThis is a guest post.

Like so many of you, I often struggle to make my credit card, school loan and car and mortgage payments. I admit to being seduced by the thought of getting all my debts lumped together so that I can make just one single payment instead of having to remember to make many payments. I discovered that there are several different debt consolidation options out there. So, how do you know which consolidation method is right for you?

Balance Transfer Credit Cards

If you have mainly credit card debts, balance transfer credit cards might be your solution. You simply transfer all of your remaining balances to one of these cards that offer you a low interest rate for a set time period.

The benefits of using this debt consolidation method include having to make just one payment a month and saving money on interest payments. However, keep in mind that once the set time is up, the interest rates typically increase drastically.

The trick is to pay off the balance while you have the low interest rate. If you don’t, you’ll probably end up hopping from card to card, which shows up on your credit report and makes you look like a credit risk.

Debt Consolidation Loans

A debt consolidation loan allows you to borrow money to pay off your existing debts. They take your multiple monthly payments and turn them into one low monthly payment. Folks with iffy credit scores typically have to get a secured debt consolidation loan. These loans offer relatively low interest rates, but you have to use your house or car as collateral. If you don’t make your payments on time, they can come in and repossess your property.

If you have good credit scores, check into an unsecured debt consolidation loan. Although the interest rates are typically higher than those on secured loans, you won’t have to borrow a huge chunk of change against important collateral such as your house. If you end up defaulting, your credit score might tank, but at least you’ll still have a roof over your head.

Debt Management Companies

A debt management company consolidates your debt so that you only make just one monthly payment. These companies can generally negotiate with your creditors and get you lower monthly payments and lower interest rates. However, you cannot include any secured creditors in this type of consolidation method. You also have to send your payment money to the company and they’ll forward it on to your creditors.

As the old song goes, you better shop around. Find a debt management company with great reviews that you can trust to forward your payments to those you owe in a timely manner.


Whatever debt consolidation option you decide to use, don’t sign any official documents until you get all of the details in writing and read the fine print closely. Shop around to ensure that you’re working with a reputable company that can get you the best rates or the lowest fees and like me, you’ll soon be on your way to a better financial future.


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I also blog at A Five Star Life. I write about anything that comes to mind but try to focus on finding the good in daily life.

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