With consumer debt rising every year to the point that for the first time in our history Americans owe more than they earn, the importance of debt relief and reduction education has become self-evident. Unfortunately, the vast majority of consumers have very little understanding of what debt relief options are even available to them, let alone which one is appropriate given their situation. The purpose of this series is to lay out every possible debt relief option available and to articulate some of the common mistakes consumers make when choosing their avenue for debt reduction.

Using High Interest, Low Monthly Payment Loans for Debt Relief

The concept of a debt consolidation loan is appealing---you get a lower monthly payment and you don’t have to worry about 10 different payment due dates. The problem lies in the fact that many consumers who seek debt consolidation loans oftentimes have poor recent credit history or a high debt load. This being the case, most of the debt consolidation loans that would help their situation are not available, and the consumer is stuck paying back the debt at high interest, sometimes higher than what they were paying before. The main companies offering unsecured debt consolidation loans, like Citifinancial, Beneficial, and Household, may offer a lower payment than what someone currently is paying, but the price is sometimes the long-term financial heath of the consumer.

Transferring Balances For Debt Reduction

Another common debt reduction trap is consistently transferring credit card balances. In theory it is a sound move financially---you put the balance from one of your high interest cards onto another credit card with a lower promotional interest rate. Truth be told, it may not be a bad option if you can predictably pay down the balance before the promotional interest rate expires. When the offer expires, however, even if other promotional credit cards are available, eventually the balance transfer debt reduction trap may catch up with you. Lots of credit card activity on your credit report is a major warning sign to creditors, which means that you could be perceived as too much of a credit risk and be stuck paying back the debt after the promotional rate expires.