If you've got a large amount of debt, then you've probably received a lot of phone calls from telemarketers offering you a debt reduction loan.
At first glance, this type of loan sounds great.
After all, who wouldn't want to consolidate all of their debts into one loan with a lower interest rate? My dad always said that there's no such thing as a free lunch, in this definitely applies to debt consolidation loans.
Getting a debt consolidation loan can be one of the worst mistakes, since it can actually get you in more trouble than you were to start with.
Here's a list of the top three reasons not to get a debt reduction loan: The problem with debt reduction loans is that they treat the "symptom" of being in debt, rather than curing the problem of spending more money than you have.
What you end up with after getting one of these loans is a large loan that you're making payments on, as well as new debts that will pop up when you inevitably spend more money than you have.
Statistically speaking, people who get loans to pay off their debts end up with the same amount of debt (if not more) in as little as two years.
And remember, this is in addition to the consolidation loan that they now have to pay.
If you have credit card debt, you should know that it is what is called "unsecured debt".
This means that the loan is not backed up by a tangible object, such as your home.
Most consolidation loans are what is known as "secured debt", or debt that is backed up by something valuable, most often the house that you live in.
The problem with this is that if you fail to pay off your debt reduction loan, the creditor can now foreclose on your home.
With the original debt, the only recourse the creditor had was to sue you in court.
They couldn't come after your home.
So what you've done by getting a secured loan (AKA "home equity loan") is to put your home at risk of being taken from you.
Doesn't sound so smart after all, does it? Even if you dodge the bullet of getting a secured loan by getting an unsecured loan, you're still gonna get smacked with higher interest rates.
This is because your inability to pay off your current debts makes you a credit risk, meaning that anyone who is willing to give you credit is going to charge you a higher interest rate to offset the additional risk.
They may use some tricky mathematics, such as a longer loan repayment term, so that they can offer you lower payments than you're currently making.
What this means for you, though, is that you end up paying even more in the long term for your debts.
This is something that most people who are in debt can ill afford.
So, what can you do to avoid the problems so common when getting a debt reduction loan? You can avoid each of these problems by taking the bold step of managing your own debt.
Unless you're on the brink of bankruptcy, you do have the ability to get out of debt without the assistance of some lender or credit counselor.
It may take some radical changes in your lifestyle, but once you make those changes you'll be curing the behaviors that got you into debt in the first place.