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What you should know before using a debt consolidation service

Debt Consolidation can be used as an effective tool for debt management, but, like any tool, it must be used correctly and safely. If you use a power tool such as a circular saw, you can accomplish much more than you could without it, but there is danger as well. Using a circular saw unsafely can cause you serious injury. The same is true of the tool of debt consolidation.

The principle of Debt Consolidation is simple. Pay off several debts owed to different institutions or people by creating one new debt of the same amount.
The usual context is the consolidation of credit card debt. A company will make you an offer of a debt consolidation loan with low or no fee on balance transfers. If you consolidate, you will make one monthly payment instead of paying several credit card bills each month. Most companies will advertise that you will have a lower monthly payment. While this is true, there is a trade-off: a longer payoff.

There are two things to consider when someone is trying to sell you debt consolidation services. First, they are going to benefit financially from this loan. They will get the interest and other finance charges that you otherwise would have paid to the credit card companies. Second, you will have a higher available credit limit on the credit cards that you are paying off. This could cause your debt to skyrocket.

If you can control your spending, debt consolidation is a useful tool. It will enable you to concentrate on increasing your net worth by reducing your debt steadily. If you do not use this tool safely, you can damage your financial position by charging non-essential items on your credit cards until you are much further in debt than when you consolidated.

Compare this spending control to the safety equipment you should use with a circular saw to prevent injury. Some practical ways to implement this control might be to strengthen internal resolve or to ask someone to help you. Surrender your credit cards to a trusted relative or friend.

With these precautionary measures safely in place, use the tool of debt consolidation to better your financial position.
 
 

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