Hiding the Problem

• When you choose to consolidate your debt, you roll all bills and outstanding debt obligations into one. The debt is not removed, and it doesn't magically disappear, it is simply restructured to look like something else. For some people, this action is the equivalent of hiding the debt and making it seem as if it no longer exists. When you see your debt as magically gone, you may be tempted to go out and start accumulating more debt and compounding the problems you were trying to fix with the consolidation.
  
  

Prolonging the Problem

• Debt consolidation often involves restructuring your existing bills and obligations so that you are paying less interest and smaller monthly payments. A common way to do this is to get a new loan that is large enough to pay off all of the other outstanding debt obligations you have. Setting it up so that your payments are lower often means you are prolonging the payoff period as well, which means you may end up being deeply in debt for many more years than you would have if you chose to simply start paying off each debt one by one.
  
  

Spending Habits

• People get deeply into debt because of poor spending habits. Credit cards may tempt you to buy things you can't afford and continue doing so until the card limits are maxed out. If you have poor spending habits and you choose a debt consolidation option that pays off your credit card completely, there is a real risk that you may simply go out and run up charges on the cards again, creating additional debt problems on top of the existing consolidation loan you just got.
  
  

Fix the Problems

• Financial author and radio talk show host Dave Ramsey strongly encourages you to fix the financial problems and bad habits that got you so deeply into debt in the first place, instead of hiding the problems with debt consolidation. Once you get a firm handle on your spending habits and begin to use credit responsibly and sparingly, then debt consolidation may be a helpful tool to reduce the overall interest rates you're paying on the old debt.