One concept that is generally a terrible idea is quite popular today – consolidating debt with poor credit. If you have poor credit, why would you want to take on additional obligations to a third party who will claim to help you with your debt? The true way to help yourself with debt is to find more income. Get a second or third job, a part-time job, or sell something to get more money to pay your bills. There are rare circumstances where a good non profit debt consolidation company can help you out, but for the most part you should be paying down your own debt.

When you do a debt consolidation, there are several methods. With one, you manage to borrow enough money to pay off all the old debts, and then you have just one bill to remember to pay. Usually this is worked out so that your monthly payment will be for less than the sum of all the old payments before. The catch is that you pay interest for a longer period of time on the new loan. Maybe it will be a bit lower interest rate than the old bills had, but since the overall monthly payment is lower, you know that it will last longer in time to accommodate the payback period. You pay interest over more time, and may lose any economy. You remain in debt longer than otherwise.

Another method of consolidation is one where a third party company charges you a monthly fee and they ask you to submit money every month that goes into a special account they hold for your bill payments. They let this account build up until there is enough to offer a settlement to one of your creditors. The problem is that in the meantime, no payments are made and your credit record will get even worse. This process can stretch out for years and all the while you pay their monthly fee. They may be able to get you some discounts and reductions, which are good, but you may have been able to get this on your own if you had just asked.

Another common financial mistake is using bad loans such as poor credit unsecured loans. These loans carry extreme interest rates and will almost always cripple your cash flow. The last thing you want to do when you already have financial issues is to start paying high amounts of your income to interest.