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The biggest cause of renewed debt is the inability of consumers to stop spending after taking out a loan to combine their bills. Most people with spending problems only quit spending when they run out of credit. When the cards are full, you can’t spend anymore. Maxed out credit cards make a pretty effective deterrent against spending, but they also come with penalties and fees for going over the limit. When you take out a new loan and use it to pay off all of the other ones, your credit cards are suddenly unencumbered - you owe nothing.
People often succumb to the temptation to start using their cards again once the balances drop to zero. The notion that the debt is gone is a fallacy; the debt has been moved to a new loan. If you start spending again, you will not only end up in financial trouble, but you will actually be worse off than you were before, as your capacity to pile up debt has increased. Smart consumers know that they cannot spend money after taking out a debt consolidation loan, as the objective is to reduce the debt. It would appear that this is practiced only by a minority of those who take out these loans, and most people simply resort to their old ways.
Professional credit counseling is a good step towards clearing up those financial problems. A professional can point out the potential pitfalls of taking on more debt in order to repair your finances. They can help you pay down your bills instead of letting them grow again. Combining several credit card balances or bills into a single payment through consolidation can be a great way to get out of debt. It isn’t a magic answer, however, and consumers need to know this and be prepared for the difficulties that come with solving financial problems.
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