• Skip to primary navigation
  • Skip to main content
  • Skip to primary sidebar

National Debt Relief

National Debt Relief - A+ BBB Accredited Business - Get Relief From Credit Card Debt, Medical Bills And Unsecured Loans

Talk to a debt counselor toll free:

800-300-9550

Get Relief From Credit Card Debt

Medical Bills and Unsecured Loans

  • Apply Now
    • Qualifications
    • Is This Right For Me?
  • Proven Results
    • Debt Relief Benefits
    • Credit Card Debt Relief
  • Debt Relief
  • Credit Card Debt Relief
  • Debt Consolidation
  • Login
HomeBlog Debt ConsolidationDebt Consolidation Traps — How to Understand and Avoid Them
Video Transcript

Free Debt Consolidation Quote

By clicking "Get Free Quote", you agree that the phone number you are providing may be used to contact you by National Debt Relief (including autodialed and prerecorded calls, as well as text/SMS messages). Msg. and data rates apply, and your consent to such contact is not required for purchase.
  • National Debt Relief, LLC BBB Business Review
  • McAfee SECURE sites help keep you safe from identity theft, credit card fraud, spyware, spam, viruses and online scams

Debt Consolidation Traps — How to Understand and Avoid Them

December 16, 2016 by National Debt Relief

A young couple with money at homeDebt consolidation can sound like a great solution if you feel as if you’re drowning in debt. Your loans, credit cards and others unsecured debts are consolidated into a single sum that you can pay off – probably with a better interest rate – and with lower monthly payments that should be easier for you to manage.

According to a survey done by Gallup in 2014 we Americans have an average of 3.7 credit cards and carry an average of $5142 just in credit card debts. If you have this many or more cards plus an auto loan, a line of credit and maybe some student debt it becomes clear why debt consolidation might look like a great solution.

However, it’s important to understand above all that debt consolidation is only a tool because it will do nothing to change the amount of money you owe. In fact, in fact debt consolidation alone won’t really solve your problem.

If you’re considering debt consolidation you need to be aware of these six common mistakes that people often make and what you could do to avoid them.

You fail to understand the root of the problem

A trap many people fall into is that they use debt consolidation as a sort of lifesaver because they’ve gotten over their heads and maxed out their credit cards. It becomes a kind of reflex reaction that doesn’t address the biggest problem, which is how their life style got them into so much debt.

The fact is that if you don’t get a good grasp on what you did the got you into so much debt, it could just happen again. What most experts say is if you don’t change the habits that got you into so much debt it’s almost guaranteed you’ll get right back into debt – and maybe in just a few months.

The solution to this is pretty simple.

You may need to get a money coach, a financial advisor or credit counselor who will review your spending and help you identify those areas where you’ve been spending too much. As an example of this you might have been spending too much on expenses like your car payments, housing and other living expenses. If this is the case, the solution could be as easy as tracking your spending and then finding ways where you could cut back. Plus, you will need to develop new habits to replace your old ones.

You don’t investigate other options

There are a number of options for consolidating debts. You could get an unsecured loan, a secured loan or transfer your credit card debts to a 0% balance transfer card.

Other options include debt settlement or a debt management plan. Debt settlement has become increasingly popular because it consists of paying a lump sum to settle a debt for less than its balance.

If you’re not familiar with debt management plans this is where you go to a consumer credit counseling agency, which develops a plan with your creditors so that your debts get consolidated and at a lower interest rate.

To avoid this trap, you need to be proactive and look for the best consolidation plan. Make a list of all of your debts, then shop for the best interest rates. You might even contact your creditors and try to negotiate lower interest rates. Once you crunch the numbers you might actually find alternatives that would be better than debt consolidation.

You consolidate the wrong debts

A mistake some consumers make is consolidating all of their debts – even those that have low interest rates such as their federal student loans. Or worse yet, they roll in credit cards with low interest rates so they end up paying higher interest just to have a single, consolidated payment.

To avoid this trap make sure you’re consolidating only those of your debts that have high interest rates. Then pay off separately those that have low interest rates and low balances.

drowning in debt need debt consolidationYou begin using your cards again too quickly

When you get your debts consolidated you could feel an incredible sense of relief. Just think. No more from calls from angry lenders and no more stress trying to juggle a bunch of different credit card bills with different minimum payments and different due dates.

But there’s a danger here if you start feeling invincible. It’s a trap to think that everything’s okay and you can start using your credit cards again because they now have zero balances. But then, before you know it, you’re in the same position as you were before.

The way to avoid this trap is to keep reminding yourself that you really aren’t out of debt – that you still have a lot of debt outstanding. You might close some of those credit cards, cut them up or put them in a block of ice. Hang on to a couple of them that have low credit limits and use them only in the case of an emergency.

You fail to develop an action plan

Even if you’ve done a really good job of choosing the best possible debt consolidation plan, you’re still not off the hook.

You need to make a plan for paying off the debt that you consolidated. This is so that if life throws you a curve – like your car dies or you need to make an unexpected trip to the hospital – you won’t turn back to using plastic. Or, worse yet, “frugal fatigue” could set in and you could end up going on a shopping spree to relieve it.

The way to avoid this trap is to meet with your family and maybe a credit counselor or financial planner and make a budget will balance you spending your income and savings goals.

The financial counselor Kathryn Bossler notes that “A budget is such a simple, basic concept, but it’s so powerful. It’s the way you learn to live within your means.”

One good way to budget is called the envelopes method. It’s where you put a predetermined amount of cash into envelopes labeled groceries, transportation, entertainment, clothing and so on. You should also have an envelope labeled emergency fund so you’re putting money away to cover an automobile repair, a medical bill, a leaky roof and other unexpected costs.

Then when one of these envelopes is empty, that’s it. You can’t spend any more money in that category.

You can also do this on your smart phone using the free app Mvelopes.

If you’re not familiar with this “tough love” form of budgeting, here’s an entertaining video that explains it in detail.

But whichever envelope method you choose the important thing is that you’ll be putting money aside so that in the future you won’t be forced to create more debt.

Frequently Asked Questions about debt consolidation

Q. What does debt consolidation do to your credit?

A. This will depend on the option you choose. However, whenever you apply for new credit it will ding your credit score by a few points. If you’ve maxed out your credit cards and move those debts into a debt consolidation loan this would increase the amount of credit you have available. Your credit utilization ratio should go down, which would cause your credit score to go up.

Q. How do debt consolidation loans work?

A. You take out a sizable loan and use the money to pay off all your creditors. You then make monthly payments on the loan, which should have a lower interest rate than the average of the interest rates you’re currently paying and a lower monthly payment. You may be able to get that loan through a debt relief company, as a personal loan from your bank or as a home equity loan.

Q. Are debt consolidation loans easy to get?

A. This will depend almost entirely on your credit score. If you have excellent credit (a credit score of 781 or above) it will be easy to get a debt consolidation loan. If your credit score is 661 to 780 it should be fairly easy for you to get one. However, if your credit score is below 601 you may find it difficult.

Q. What debts can be rolled into a debt consolidation loan?

A. In theory almost any debt can be rolled into a debt consolidation loan. However, as you have read in this article the best debts to consolidate are those that have high interest rates. These are generally credit card debts, personal loans, personal lines of credit, payday loans – and other such unsecured loans.

Q. When is debt consolidation a good idea?

A. It can be a good idea if you have multiple, high interest debts. It’s become popular because it offers some important benefits. For one thing, it’s just a lot easier to make one payment a month that a lot of different payments with different due dates. But more importantly, the debt consolidation loan should have a much lower monthly payment than the total of the payments you’re currently making.

Do you qualify for debt consolidation?

National Debt Relief
National Debt Relief

National Debt Relief is one of the largest and best-rated debt settlement companies in the country. In addition to providing excellent, 5-star services to our clients, we also focus on educating consumers across America on how to best manage their money. Our posts cover topics around personal finance, saving tips, and much more. We’ve served thousands of clients, settled over $1 billion in consumer debt, and our services have been featured on sites like NerdWallet, Mashable, HuffPost, and Glamour.

Follow National Debt Relief: Facebook Twitter Instagram Linkedin

Primary Sidebar

Consolidate Your Debt!
Find out how NDR could help.
  • Get one low monthly payment
  • Avoid bankruptcy
  • Get out of debt in 24-48 months
Get Your Free evaluation
Free Debt Consolidation Quote
By clicking "Get Free Quote", you agree that the phone number you are providing may be used to contact you by National Debt Relief (including autodialed and prerecorded calls, as well as text/SMS messages). Msg. and data rates apply, and your consent to such contact is not required for purchase.
 Trusted By Our Clients

"National Debt Relief is like a headhunter. Until you sign up..."

Moderate National Debt Relief Caller: Charlotte Transcribed WE 1/24/2021 Charlotte: Before I begin, I have to let you know that our call may be recorded. Can you tell me, how did you first hear about our National Debt Relief? JOAN: Oh, I don't know. I don't remember. I don't know how I heard about it. Charlotte: What made you decide to work with them? JOAN: Well, obviously, I needed to consolidate my debt. Charlotte: Tell me about the service program that they provided you with. JOAN: Well, I'm not done. But for me, it’s costly. What I did not like about it was that they add on. They say it's going to be X amount of dollars. But then what they do is they say, “Oh, well, we found another creditor that you need to…” So that'll be at a different part of the month and I don't like staggered bills. If I'm gonna pay a bill, whether it's to the phone company, the insurance company, whatever it might be, I want to pay that bill once a month. That's the only drawback. Charlotte: So let me get this. Normally, they are collecting the bills upfront. And then they work to get them paid off at a different rate. So everything wasn't collected all at once, if that's what I'm hearing correctly. JOAN: No, no, no. Every month, money is taken out of your account. And they pay X amount of dollars. Like let's say you owe $5,000 with Citibank, $500 in Credit One, whatever. They work out a deal with them and then they say, “Well, you have to pay $350 a month.” And they'll pay $20 a month towards -- they give you like around about how long it's going to take. Two years, two and a half years. And then they work it out that way. Charlotte: Now, what did you think about your negotiator? JOAN: I don't know. I just called up. It's a completely different department. So when you call up to sign up, it's very different. I don't remember that. It's just that they collected all the information. It was easy for me. I didn't have to go through and find whatever bills I wanted to put in the debt relief. They did that. Charlotte: So say you have questions or concerns. How did you get your questions or concerns addressed? JOAN: I would just ask and they answered it. They're very helpful like that. They'll answer any questions you have. And if they don’t know, they will find out. Charlotte: So was there not a particular person that you spoke with? JOAN: No, you don’t have one person that you deal with that just handles your account. Once you do – they’re like headhunters. Until you sign up, you're going to have that one person and even other people calling. Once your name is out there, they're going to keep calling you. So, once you sign up, then it's whoever answers the phone. It’s customer service. Charlotte: How comfortable did you feel working with National Debt Relief through this process? JOAN: I felt very comfortable, very safe. I was not worried about anything. Charlotte: Is there anything about this process that you would have liked to seen handled differently? JOAN: Yes. The way the payments come out. I'd rather have them one instead of … Charlotte: Everywhere. JOAN: Right. Well, not everywhere. For the most part, the bulk of them were. But then if there's one here, one there, they don't just extend it to another payment. And then the payments change, like the payment amount. You could pay $20 for six months, and then all of a sudden, it's $80 for the next three months, so you really don't know. Charlotte: So if you have to rate this experience on a scale of one to five, five is you’d recommend to friends, one you're pretty dissatisfied… JOAN: No. I would definitely recommend it to a friend. Charlotte: How would you say working with National Debt Relief has impact your life? JOAN: Well, it did help until I hit a speed bump. I'm in the middle of a divorce and my husband closed our checking account, of course. But so far, as a matter of fact, that's why I thought you were calling. I have to postpone the next month, so hopefully, they'll be able to postpone it, because I've been postponing it for a few months. Charlotte: Would it be okay if I posted your comments as a review on our public website for National Debt Relief? Because you did give us some really good feedback. JOAN: Yes, but not using my name. Charlotte: Okay, I will make it anonymous for you. I will also send over a link so that you can have it as a record for yourself at jdola20@yahoo.com. JOAN: Yes, but do not put that public. Charlotte: Oh, no, no, no. That doesn't go public. Definitely. How would you say working with National Debt Relief has impact your life. JOAN: Well, really, it would have helped if I could have stayed on the program. Charlotte: We’re recorded.

Trustpilot star rating Trustpilot star rating Trustpilot star rating Trustpilot star rating Trustpilot star rating

Joan Mcgowan
ConsumerAffairs Reviews

Latest Credit Card Debt Posts

  • 4 Debt Management Money Saving Experts To Make Sure You Follow
  • What Is Credit Card Churning And Should I Try It?
  • Help! I Am 5 Years From Retiring With Huge Credit Card Debt!
  • What Is the Best Credit Card Payoff Plan?
  • The Truth About Credit Card Debt In The US
National Debt Relief, LLC BBB Business Review AFCC Top Ten Reviews Gold Top Consumer Reviews Consumers Advocate Trust Pilot
Company
  • About Us
  • Contact Us
  • Blog
  • Careers
  • Corporate
  • Privacy Policies
  • Terms Of Site
  • Disclaimer
  • Sitemap
Products
  • Debt Relief
  • Credit Card Debt Relief
  • Debt Consolidation
  • Debt Settlement
  • Calculators
  • FAQs
Debt Resources
  • Credit Card Debt
  • Medical Debt
  • Personal Loan Debt
  • Unemployment
  • Divorce Debt
  • Retiree Debt
  • Veteran Debt
  • Business Debt
  • Personal Finance
Follow Us
  • Facebook
  • Twitter
  • Linkedin
  • Instagram
  • Pinterest

© 2021, National Debt Relief, All Rights Reserved.

Disclaimer
Disclaimer
Disclaimer