Americans are notorious for consumption. Consumer expenditures account for about 70% of US GDP – or gross domestic product, the sum of consumer expenditures, government spending, capital investment, and net exports. Unfortunately, Americans are equally notorious for kicking the can down the road.

According to the 2016 American Household Credit Card Debt Study by NerdWallet, the average household with credit card debt has a balance totaling more than $16,000 and pays nearly $1,300 annually in interest. Even excluding mortgage debt, which accounts for two-thirds of all consumer debt, Americans have a total outstanding balance of $4.1 trillion between credit card, auto, and student loan debt, equivalent to an average balance of more than $95,000 per indebted household, sans mortgage debt.

In an effort to get a grip on a growing debt burden, many Americans are opting to consolidate their debt. The rationale, at first glance, appears reasonable. Debt consolidation can simplify the complexity of making multiple monthly payments of various amounts and it is typically advertised as providing a lower monthly payment.

However, debt consolidation does not come without costs, some of which are unforeseen. Certain debt consolidation offers will include high fees, low temporary teaser rates, or a balloon payment schedule. In certain circumstances, receiving debt forgiveness from a creditor can be a taxable event and individuals may receive a 1099-C debt cancellation income form. The IRS requires individuals to report the amount of debt forgiven as a form of “other income.” Individuals who find themselves in this scenario should consult a CPA or a lawyer to see if they qualify to claim an insolvency exemption.

Moreover, while home equity and funds in a retirement account are typically protected from creditor claims, if after having resolved all creditor claims a person liquidates these assets, creditors may be able to make a claim against the cash generated from selling the home or liquidating the retirement assets.

Another potential concern with debt consolidation is the psychological impact. Overextended borrowers may feel erroneously more confident in their financial situation given the lower consolidated monthly payment and the new zero balance on their credit card. This often causes borrowers to revert back to their original spending pattern and results in an even grimmer financial situation – a consolidation loan and rising credit card debt.

The bottom line: Only a change in borrowing and spending patterns will provide a lasting solution for someone in financial distress.

A good first step is to get your outstanding debts down on paper. Make a list of your credit cards as well as your other loans. Knowing the interest rate on your credit cards is just as important as knowing the ingredients in the food you eat. If you don’t know the current interest rate on each card, call and find out.

Rank your cards from highest to lowest interest rate, and eliminate the “winners” at the top of the list. Don’t just pay those card off as quickly as possible, also promptly take them out of your wallet cut them into pieces – perhaps one piece for every dollar owed. Keep in mind the Rule of 70: a $20,000 debt accruing interest charges at 20% will double to $40,000 in just three-and-a-half years.

Take out the scissors and cut up those cards.

If you do find yourself in financial duress and are considering utilizing a debt consolidator, make sure the company belongs to the National Foundation for Credit Counseling, which requires credit counselors to adhere to ethical guidelines to remain accredited. You also may want to consider the pros and cons of filing for personal bankruptcy in lieu of debt consolidation. It goes without saying that it would be wise to seek the counsel of a CPA or attorney before making any of these determinations.

With the staggering amount of household debt on consumer balance sheets today, many individuals are making reckless decisions out of desperation. Don’t bury your head in the sand. A bad debt situation is not to be ignored. Consider all your options, and know that in some cases, there can be downside to using a debt consolidator.

Jeanie Wyatt

Jeanie Wyatt is the founder, chief executive officer and chief investment officer of South Texas Money Management.