How to Stay out of Trouble with Credit Card Debt Consolidation Loans

Posted by: Krista McDonald on 01/14/2011

Although credit card debt consolidation loans are definitely a way to get yourself out of debt trouble, it’s not so easy for some of us to stay out of debt trouble.  Every day we meet people who have tried a variety of different debt solutions that just haven’t worked for them.  Here’s one of their stories.

A few weeks ago, a young couple came into our offices to talk about declaring personal bankruptcy.  They were deep in debt, with multiple threats of collection activity bombarding them daily.  Their house was one step away from foreclosure and the husband’s wages had just been garnished.  The wage garnishment was the last straw.  In the course of our initial conversation, I learned that 2 years prior they had taken out a debt consolidation loan to deal with their credit card debt.

At that time, they owed a total of $38,000 to six different creditors.  They had made a large down payment on their home so even thought they hadn’t owned it very long, they had enough equity to qualify for a debt consolidation loan to pay off the $38,000.

Now here they were, with wages garnisheed, a home about to go into foreclosure, and a new total of $42,000 in credit card debt.  How could this possibly have happened?

They didn’t do what I am about to tell you to do in order to stay out of trouble with a debt consolidation loan.  Shut down your credit cards, saving one for emergencies.  Then, enroll in credit counseling to ensure you know how best to use the one you card you kept.

The young couple I met with didn’t do that.  They kept their cards, and after a prolonged period of depriving themselves of the “adult toys” they both loved, the temptation to start using those cards, now with zero balances, was too much,

So they started buying; just a little at first, but over time the balances on the cards began to grow.  They weren’t concerned because the debt consolidation loan had given them quite a bit of extra income left over each month.  In a year’s time, they had run up a substantial debt and then the wife lost her job.

In the final year, credit cards became the means of purchasing food, gas, and clothing.  At the end, they were writing credit card checks to pay utility and other bills and finally the house of cards they had built came tumbling down.

We hear stories like these every day.  While something beyond your control like losing a job or being laid off can push you over the edge, in far too many of the cases we see, it’s the maxed out credit cards that really lead to trouble.  If you take out a debt consolidation loan without learning how to manage credit better, you could be asking for trouble.