Disadvantages of Self-Consolidating

Debt consolidation is the process of bringing several high-interest debt accounts under one low-interest loan. People unfamiliar with consolidation may choose to speak to a debt consolidation professional. Those who have confidence in their ability to deal with financial matters may decide to create their own consolidation plan. There are some disadvantages to self-consolidating that the do-it-yourself financial planner should be aware of.

Recognizing Tax Advantages

Depending on the method you choose to consolidate your debt, you may be entitled to tax benefits. If you are not a trained financial planner or debt consolidation specialist, you may miss this opportunity at a tax break and create a plan of your own that you will be obligated to for years that offers no tax benefit. For example, when you use a home equity loan or line of credit to consolidate your debt, you can write off the interest you paid and reduce your taxable income, according to online financial resource Financial Web. There could be several tax breaks available to you when you consolidate that a financial professional would be able to recognize but that you may miss on your own.

Understanding the Process

In order to maximize debt consolidation, there are procedures you should follow. For example, prior to applying for a consolidation loan, you can help yourself by gathering all of your bills together, creating a list of the debt you owe and paying off the accounts that are within your means. You should also order copies of your credit report to make sure that there are not any older outstanding accounts that need to be satisfied along with the accounts you currently pay. This will allow you to consolidate all of your outstanding debt without leaving old unpaid accounts behind to drag your credit score down. Debt consolidation is a process that involves many steps and, without the guidance of a professional, you may leave out steps that will come back to affect your credit later.

Maintaining Control

According to online investing resource Investopedia, part of the debt consolidation process is getting your spending under control. It is not enough to consolidate your debt under one account; you must also take necessary measures to prevent your debt from piling up and becoming a problem again. A debt consolidation professional understands the difficulties in curbing credit spending, and an expert can help you create a plan that will prevent your debt from getting out of control again. Without the guidance of a debt professional to help you through the entire process, you may be tempted to run up debt on your credit cards again and require a second consolidation loan before your first one is paid off.