The dream of achieving debt freedom can seem unreachable when you’re facing a stack of bills that seemingly gets taller each month. Further, with the need to keep track of so many obligations, the likelihood of accidentally missing a payment every now and then can be high.

Combining your debts into one vehicle reduces this likelihood. Moreover, your overall monthly payments, as well as your average interest rate, will usually drop too. 

Sound good?

Well, here’s what else you need to know about debt consolidation loans before you sign up for one.

You’ll Still Owe Money

A debt consolidation loan can indeed feel like a fresh hit of oxygen after so many bills have smothered you for so long. Keep in mind, though: You’ll exchange many debts for a single one. In other words, you’ll still be indebted, just in a different way.

Too many people, experiencing the relief a consolidation loan provides, go out and create more debt. It’s really easy to do when all of the accounts with which you’ve struggled for so long suddenly have zero balances. The temptation to “celebrate” and “treat yourself” will be strong.

But that’s a bad move.

Left unchecked, balances on those accounts can soon run up again. However, this time, you’ll have the consolidation loan to pay off too.

You’ll Need to Calculate Carefully

It’s very possible to wind up owing more with a debt consolidation loan if you aren’t careful. One of the ways that monthly payment can drop is by extending your repayment term. In other words, even though you’re making a lower payment at a lower interest rate, you’ll pay more because you’ll pay longer.

To avoid this, take a good look at the terms of that debt consolidation loan to ensure its overall interest rate and total repayment amount are equal to or less than what you currently have. Otherwise, you’ll be going from bad to worse — even though it will feel like things are better.

You’ll Need to Do Your Due Diligence

As is always the case where financial issues exist, predators are out there looking to “take down the slow gazelle.” One consolidation scam has borrowers making payments to the consolidation company with the understanding that firm would pay off creditors.

Instead, they’ll pocket the money you send each month and pay nothing against your debts. You’ll then discover this when the collections calls start. Always get the proceeds of the loan deposited into your account, so you can pay off your creditors yourself. Make sure all of the creditors included in the consolidation acknowledge those accounts are paid in full — in writing.

You’ll Need to Manage Your Credit Strategically

On the one hand, a debt consolidation loan does have the potential to improve your credit score. However, if you close all of your existing accounts once they’re paid off, you could inadvertently lower your credit score. One of the criteria by which your score is calculated is credit utilization. Your credit score will suffer if all of your old accounts are closed and the only thing left is the high balance consolidation loan.

These are just four of the factors you’ll need to consider when you’re wondering what you need to know about debt consolidation loans. Yes, they absolutely can be a help when you’re trying to get some breathing room in your finances. However, like any other tool, they must be wielded with care.