Over the past 20 years, the debt consolidation industry has soared and increased significantly. If you are so completely overwhelmed in debt and are considering bankruptcy, you may want to look into debt consolidation as a better option. Debt consolidation allows you to pool all of your smaller and individual debts into a larger ‘consolidation loan’, thus making it easy for you to pay as you will only have to make  one monthly payment, provided that you do not get yourself into a new debt. If your monthly payment is affordable, you will eventually pay off all the debt you are in.

Commonly, people may see debt consolidation as a debt relief dream come true, but as someone stressed out with money issues, there are some warnings that you need to be aware off. It is true that debt consolidation is a better alternative than bankruptcy but you had better learn about the potential pitfalls of this option.

While navigating the debt consolidation information available to you, please read the below warnings:

1. Stay in touch with your creditors. I know that this is probably the last thing that you want to do, but it is important for you to maintain your reputation with them. Calling each of your lenders and explaining your situation that you will be consolidating your debts to ensure payment to them, is a wise thing to do. Some lenders may want to negotiate your debts individually and you may get your interest rates or payment amounts lowered and thus avoid debt consolidation altogether.

2. Debt consolidation is almost always a better choice than bankruptcy. This is largely because debt consolidation and debt relief programs do not adversely affect your credit rating. If this is done right, your credit report will show the good history of somebody doing whatever it takes to pay their debt off. Bankruptcy does exactly the opposite thing. It will effectively ruin your credit for the next 7-10 years depending on where you live.

3. Not all debt consolidation companies are the same. Some companies have only your best interest in mind, while others are only interested in making money from you. Before you go for a debt consolidation company, make sure you have done your homework to shop around and ask around. Check with everybody you know or you can think of who may have any experience or knowledge in your area. It may be your financial advisor, lawyer, friends or family. Or you can even ask your bank as well – as they are probably more likely to help you find a reputable debt consolidation company or even offer you debt consolidation companies other than you have on your list.

4. Always read the contract you will have to sign (especially the part in small print). Some debt consolidation companies may be in the business for the profit and you may end up even worse off in the long run. Make sure to read everything, and understand everything. Always make sure that you negotiate payments that you can actually handle. Some contracts may be a predatory lending trap like in mortgage contracts.

5. Make extra money to help you pay off the loan quicker. The faster you can pay off your debt, the better. If your debt consolidation company does not allow you to pay off your debt faster than scheduled, you could begin a savings program, or send your extra money to the debt consolidation company anyways for them to store the payment for the next few months. This way if one day in the future something happens to your income, you will have some extra money that you deposit in the debt consolidation account.

6. Finally, look honestly at how things got you where you are. You will find that you have to change your attitude towards money, change your spending habits and stop being so tempted by those department store credit card offers. If you are deep in a hole and want to get out of it, then stop digging.

It doesn’t matter how challenging your financial situation is, what you can do is take responsibility and look for ways to create a better future. You have more control than you may believe. Good luck!

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