Learn More About Credit Card Consolidation Loans

A credit consolidation loan is much like a debt consolidation loan. The difference is that a credit consolidation loan is used to consolidate credit card debts specifically. Just like any other long and there can be many variations in terms of duration, interest rate and other terms and conditions of a credit consolidation loan. Whenever you are shopping around for a credit consolidation loan you should try and get the best of terms and conditions by looking in more than one place.

What is the interest rate on the credit consolidation loan?

This is perhaps the foremost question you will ask yourself and the foremost feature of a loan that you’ll be looking at. The interest on the credit consolidation loan will determine how easily you can pay off your credit card Bill and how much of your monthly installments burden is reduced. There is a certain paradox here. In order to qualify for a credit consolidation loan that offers low interest and other favorable terms and conditions you need to have a positive credit file. Unfortunately, the most common cases where people look for a credit consolidation loan is when they are under the burden of unpaid credit card debt and their credit rating has already been damaged because of this.

Criteria for Qualification

This is another paradox. If you have a lot of negative information on your credit report pertaining to late payments on your credit cards then you may not qualify for a credit consolidation loan at all. For this reason a credit consolidation loan is not for people who have seen really damaged their credit history but for people who want to recover from being under a credit card debt and prevent getting late or delinquent on their credit card accounts by making the repayment process more affordable through a credit consolidation loan.

Are you actually getting a new consolidation loan?

Some consumer credit counseling agencies can draw a fine line between debt consolidation and debt management. Debt and credit consolidation happens when a new loan is taken out to pay off all your existing debts instantly leaving you with the new loan to pay off every month. However debt and credit consolidation can work pretty much in a similar manner except that no new loan is taken out. The debt from your existing creditors is consolidated by the credit counseling company and you are required to make one single payment to the credit counseling service who further disburses payment to your creditors.

Repayment Period

Just like a debt consolidation loan the length of the credit consolidation loan will determine how much money you end up

Paying to pay off your current debts. While longer to duration of the repayment period the lower will be your monthly payments, you will end up paying more money in terms of interest on longer repayment tenure.

Alternatives to Credit Consolidation Loan

Options to taking out a credit consolidation loan is to look at hardship programs or debt relief through the credit counseling agencies. You can try paying the creditors yourself by taking help you with financial management before deciding to take out a new loan. Taking out a new loan to pay the older ones is not a decision that should be taken quickly and without due thought. This is especially true if you are getting a credit consolidation loan by putting up an asset of your as collateral such as your house, car, borrowing from your retirement fund etc.

Affordability of the Credit Consolidation Loan

Whenever you are working with a creditor to take out a credit consolidation loan make sure that the terms and conditions that you settle for provide for a consolidation loan that is affordable few. The idea behind taking out a consolidation loan is to reduce the monthly burden and allow you to continue to pay your debt. Do not feel pressurized to agree to the terms of interest rate and duration of repayment that the creditor is offering if you feel that you will not be comfortable in making your monthly obligations. Shop around and negotiate with creditors to get the deal that is suitable and comfortable for you.

Reasons Why You Should Do Debt Consolidation

If there are advantages to consolidating your debt there are disadvantages as well. These are the foremost disadvantages of debt consolidation.

· Paying more. While you’re monthly payments are reduced through debt consolidation you and at paying more on the overall cost of the debt. This is because a debt consolidation loan or programme typically has a longer period of duration than the original debts. While you be paying a lower rate of interest and a lesser month installment you’ll be paying a longer able to time each means that the cost of the debt increases over the long run.

· Securing unsecured debts consolidation loan. The creditor cannot take your house for your automobile if you do not pay your credit card bills. However if you take out a debt consolidation loan on your Mortgage for your automobile and cannot make the payments in the future the creditor will be able to foreclose on your house or repossess your hard in order to recover is money. Securing unsecured debts by using a secured consolidation loan, such as a second Mortgage on your home, is considered to be high risk since you risk losing your house if you cannot make the payment on your debt consolidation loan for any reason in the future.

· You may need somebody to cosign. If you are not using some assets as security to take out a debt consolidation loan then your creditor may require you to get someone reliable to cosign on your application.

How You Can Benefit from Using Debt Consolidation

A debt consolidation is usually undertaken to make the payment of multiple debts easier. The following are some of the advantages of debt consolidation.

· Lower monthly payments. This is the foremost advantage of consolidating your loan. By transferring all your current debt onto another loan that as a lower rate of interest and typically a long repayment period you lower the monthly payment.

· Convenience of making a single payment. When you have multiple debts such as multiple credit card balances paying each of them can be time consuming and a confusing process. The result can be that you dislike the process of making out the payments each month and may even get to make the payment on any one particular account owing to the confusion of having so many. Consolidating your loan will allow you to make a single payment towards one single loan.

· Getting out of debt. The purpose behind consolidating a loan is to get out of debt. Many people consolidate their loan simply because of the convenience of having to pay a single account rather than multiple ones. The main agenda however for the majority of people to consolidate their loan is to make the repayment of the debt easier and to become debt free with.

Impact of Debt Management Plans on Your Credit Rating

It is a fact that people who seek debt management plans do so out of the need of repairing an already damaged credit rating. The very first thing that you should be aware of is whether or not you are taking the right steps before getting into a debt management plan. If any company promises you unrealistic goals such as removing negative information from your credit report that is accurate by charging you a fee then you should clearly stay away from such offers. When it comes to debt management companies and credit repair organizations the old axiom applies “if it sounds too good to be true, it probably is”.

If you have ruined your credit rating by getting yourself into a whole lot of debt that by and large remains unpaid then you must understand that the only way that you can prepare your credit is by paying off this unpaid amount one way or the other.

You may find many companies that make it sound easy to just wipe off your old debt, which is really the case. What you should ready watch out for all the companies that possibly trying to make money by talking to you into the debt management plan. Sometimes such companies will want you to enter into a debt management plan simply because that is the most profitable option for them though not necessarily the desired step that you need to take. Debt management companies make money out of the commission that they receive from the creditors on the payment recovered from you that is known as “fair share”.

A debt management plan should only be considered when you see no other way out of being able to pay your debt to your current existing creditors under the current conditions of repayment. The help of a debt management company is taking when you need help to renegotiate with your creditors in order to lower your interest rate to forego certain charges.

The debt management plan that is worked through the medium of a respectable and reputed non-profit credit counseling agency will help to reduce your monthly financial burden by renegotiating terms with your current lenders. It is also came to consolidating your debt because you will only need to make one single payment through the credit counseling agency who will then disperse the payment to all your other creditors.

There are several repeatable non-profit credit counseling companies who can include you in a debt management plan and who will be willing to work with all here debts and creditors and not just the ones that they regularly do business with.

A good non-profit credit counseling company will not only help you take of the debt but will also help you with managing your overall financial situation by using methods like budgeting, credit education etc. The goal of a good credit counseling company is to have you debt free in the next two to five years.

As for the impact that being in a debt management plan will have on your credit score, people who enter into one have already done much damage to the credit rating. Being in a debt management plan is considered by many creditors and some major financial institutions and banks has been a positive sign of the individual trying to get a hold of his debt and taking responsibility for the money that he owes. While making payments under debt management plan will not be as beneficial as being here debts in full, what is important here is that you should get debt free and be allowed the opportunity to build positive credit history from the start.

While it would have been ideal if you had never lost track of your credit situation and have all the negative data about unpaid debts and delinquent accounts reported on your credit report, once that has happened getting debt free by the means of a debt management plan through a reputed non-profit credit counseling agency may be the best thing that you can do to get back upon your feet again.

Before selecting a company or credit counseling agency please check with the better business bureau, the Federal Trade Commission website and even your state attorney general office for information about the non-profit organizations in your state.

The Effect of a Debt Management Plan on Your Credit Report

The impact on your credit score for being a part of a debt management plan is usually minimal. 

A there are two reasons for this.  Number one, many creditors consider enrolling in a debt management plan as a positive sign that the consumer is trying to get his death back under control.  When a consumer and roses in a debt management plan with the reputed credit counselling agency the lender knows that the consumer is facing genuine financial trouble and yet is trying to pay off his death.  For this reason creditors are also willing to help the consumer and to avoid a total write-off of debt which would be the only option left to the consumer if he did not receive the assistance.

Many credit scoring models also do not consider being a part of a debt management plan is a negative factor during their calculation. 

For example the FICO score claims that it does not include information about debt management plans in its credits for calculation is that all.  Secondly a person who enters into a debt management plan may also already have a very poor credit score due to the financial difficulties and non-payment of debt.  The negative impact of settling a debt in short-term is outweighed by the long-term advantage of getting out of debt.

The main advantage of a debt management plan also is that if you’re accounts are current they will continue to stay current as the payments to the creditors do not stop.  You are only going to be making them under the newly negotiated terms.  You must ensure that there is no gap between the time that the credit counselling agency takes over the payments scratch that.  You must ensure that there is no gap in transition when a credit counselling agency takes away payments and the payments that you make to the creditor.  You must be sure as to when the credit counselling agency is taking over the payment schedule.  As long as you payments stay on time it really won’t matter for paid them as the scoring models do not consider this information.

However, the statement will be added by your creditors during the next reporting cycle to the credit bureau that the accounts are being paid under a debt management plan.  If future lenders and creditors will be able to see this information and will be aware of the fact that you did not pay your loan as agreed but the period under renegotiated terms.  This may or may not have an adverse effect on your borrowing options depending upon the lender and your current financial situation.  Many lenders go beyond the credit report and credit score to evaluate other information about the consumer such as job stability, and what income, sets at sector in order to determine the creditworthiness of an individual.

If you can prove to the lender that you are capable of handling credit in the current time in spite of having been a part of a debt management plan than most of the lenders will approve your application for the credit.
It is usually advised to include all credit accounts under the umbrella of the debt management plan.  This may also include accounts that are closed but once that you owe money on.  While you will work to pay off the debt on these accounts as well they will not serve to benefit your credit report in any way since the accounts are closed and known data is being reported.  However this is something that should be done as a matter of personal responsibility for the debt that you take and also to enhance your own sense of personal worth.

Can Debt Consolidation Help You Get Out Of Debt

Whether or not a debt consolidation can help you get out of debt depends on your individual circumstances.  A consumer needs to realize that debt consolidation does not make the debt go way.  You are only shifting to get from one place to the other.  What you can hope to achieve with a debt consolidation is to reduce the amount that you need to pay every month towards all your debts.  However, you should also expect to be making the payments in a debt consolidation plan for a longer period of time.  The commonest way of consolidating and it is to take out a debt consolidation loans.  People usually do this by taking out a home equity loans or second mortgage.  Taking out a loan on the equity in the home or in equity line of credit in the home allows a higher credit limit with the lowest interest rates.  Also, by extending the tenure of a loan monthly payments are reduced.  While the new loan is used to pay off the existing debts, you now have the single new loans to make the payments on.  There are a few things that you need to consider carefully in order to determine whether that consolidation will indeed help you get out of debt.

How does a debt consolidation loan work?

When you take out a debt consolidation loans you pay off the existing debts and credit card balances with the money that you receive from the new loans.  After this you only need to make the payments on the new loan debt consolidation loans.  If you have managed to get this loans at a low rate of interest which is usually the case with loans on home equity off loans against insurance policy, you will save money on the payment every month.  Since the debt consolidation loans is usually a long-term loans, this helps in cutting down the monthly installments as well.  It is possible to get an unsecured debt consolidation loans such as a personal loan as well.  However, for this you will need to have a good credit rating.  Also the personal loan will need to be considered carefully as the rate of interest is usually high.

Debt Consolidation May or May Not Be a Permanent Solution

That consolidation only addresses the symptoms and does not make underlying issues go away.  That consolidation will ease the monthly burden of debt repayment surely.  But if the reason behind your original debt burden was mismanaged finances and irresponsible handling of credit that it is quite possible that you might get yourself back into the same situation in a couple of years.  Don’t let the relaxed pressure and more available cash float lull you into a false sense of security which makes you go ahead and borrow more money.  Control your spending and avoid further credit until the time you have paid off the debt consolidation loan.

Changing Unsecured Debt into Security Debt

Generally a debt consolidation loans will require you to provide some security is a collateral.  If you take out a loan on your home equity as a means to pay off your credit card debt then you are converting unsecured debts into secure debts.  While credit card company cannot take away your home if you don’t pay them, when you use a line of credit in your home equity then the lender can use for closure in order to recover his money.  This is the reason why changing unsecured debts into secure debts by using valuable assets as collateral needs to be thought about very carefully and only to be considered when you are very sure of completing the payments on that consolidation plans.

Will a Debt Consolidation Loan Save You Money?

There are two ways to look at this question.  A debt consolidation loans doesn’t be save money on a monthly basis by reducing the installments that you need to make towards your debt.  All your high interest rates will have been paid off and you will be left with a single and hopefully low interest rate that you will need to make the payment towards.  Even if the interest rate is not much lesser than your previous debts debt consolidation loans usually has a longer tenure which automatically serves to reduce the amount of monthly installments.
However, since you are going to be paying this small installment for a longer period of time the overall amount that you pay may not be lesser than your original debt and in fact may be higher.  One way to save money with a debt consolidation loans is to allow yourself to get back on your feet during the first few months of the loan and then once you have organized a finances better to attack it more aggressively and tried to pay it off as quickly as possible.

Alternatives to Debt Consolidation

The closest alternative to debt consolidation is debt management.  A debt management plan is usually something that managed with the help of a credit counseling service.  A debt management plan does not require you to take out a new loan to pay off your existing debt but involves negotiation by the credit counseling service with existing creditors to lower your current interest rates and allow better terms of repayment by waiver of financial charges, late fees etc..  Once an agreement has been reached between the credit counseling agency and you creditors you will continue to pay them off under the new terms of the loan through the credit counseling agency.  Like debt consolidation you will be required to make one single lump sum payment to the credit counseling agency will then be responsible for dispersing it to you creditors.

Pros and Cons of Debt Consolidation

The main reason why a consumer may seek out debt consolidation is to make paying off debts easier. Debt consolidation is usually the process by which several separate loans are paid off by taking one additional single loan.

Pros of Debt Consolidation

If you have managed to run up balance on various credit cards during college or have several high interest instalment loans such as student loans, car loans and credit cards then you may wish to consider debt consolidation.  Debt consolidation brings about the ease of making a single payment every month to pay off all your debts along due to avoid late fees, extra charges and the bad credit rating that could inevitably result when he don’t pay your bills regularly. When you take out a debt consolidation loans all your standing there get paid off instantly and you are only required to make the payment on the new single loan. Although the total amount of debt may not get reduced over the tenure of the debt consolidation loans your monthly payment can reduce substantially.

Cons of Debt Consolidation

As mentioned before the intent of consolidating their debts is to not only reduce the number of payments to be made every month but to also lower the monthly amount. If your credit rating is suffering you may find it difficult to get another loan for the purpose of consolidating your debts at a lower interest rate.  If you cannot consolidate your debts with a loan at a lower rate of interest than there is really no point.  It is common for the lender to ask for the security of an asset such as an equity line on your home as collateral before extending a debt consolidation loans.  Putting your home, life insurance policy, retirement fund sector for the purpose of paying unsecured debts such as credit cards is a risky proposition unless you are completely sure of completing the payments on your debt consolidation loans.
Although the monthly payments might get reduced many consolidate your debts you may end up paying the same or even more than what you are originally owed since the duration of the loan is longer.  You need to balance this aspect along with the advantage that comes with lower monthly payments.

Should You Consolidate Your Debt?

The answer to this question will probably vary from one consumer to the other.  It really depends on your financial situation.  It is true that some people debt consolidation might be the only solution and helped to preserve a semblance of a credit rating without taking other dire measures like bankruptcy.  Consolidating your debt will help you save money on a monthly basis.  This may be crucial to some people to stay financially afloat and to get their finances back in order.  It is possible for you to use the dealing space that a debt consolidation will bring about in order to get back up on your feet and then attack the debt consolidation loans more aggressively.
In order to decide whether consolidating your debt is the option to you or other options are open to your view should contact financial professional who could help you by evaluating your financial situation carefully.

5 Ways to Consolidate Debt

Consolidating your debts makes it easier for you to fall through with the repayment process as it involves making a single payment as opposed to dividing the payments among multiple credit accounts.  It is easier to make the payment for one single bill rather than to compile and organize half a dozen of them.  Consolidating your debts may give you the leeway that you require in order to get your finances back under control and help you to pay off your debts asked with a lesser monthly financial burden.  There are different ways in which you can consolidate your debts.

Credit Card Balance Transfer

A credit card balance transfer is done by transferring the balance on various credit cards onto a single low interest rate credit card.  This not only makes the payment of all the credit card bills easier by combining them into a single account but also reduces the overall rate of interest.  Many are times the low rate of interest on a particular credit card is a promotional offer.  Before transferring the balances on to a card with a low rate of interest you should be perfectly aware of whether the lower rate of interest is in fact a temporary offer and when is it going to lapse.  The main idea behind any kind of debt consolidation is to reduce your financial burden.  There is no point in going through with the whole process if it is not going to help you save money.

Home Equity Loan or Home-Equity Line of Credit

A loan against home-equity or home-equity line of credit usually has a lower rate of interest and a higher borrowing limits than any other kind of loan.  This is simply because the asset being offered as collateral, namely your home, is usually the highest value said that a normal consumer has to offer as security.  The difference between a home equity loan and a home equity line of credit is that a home equity loan is a close ended account where you borrow the money once as a loan and than expected repay it according to the terms and conditions decided upon.  A home equity line of credit is an open ended account where you can keep borrowing up till the credit limit as and when you need it, just like a credit card.
Both these kind of loans must be thought about very carefully before being used to consolidate your unsecured debt.  If you fall behind on your payments you face home for closure which is a much worse situation than defaulting on your credit card payments.

Debt Consolidation Loans

Debt consolidation loans are specialized loans offered for the specific purpose of consolidating debts. these kinds of loans are offered by banks and credit unions. there are also the so called non profit debt consolidation companies that offer debt consolidation services. you must watch out for the debt consolidation companies that make unrealistic claims, have dubious credentials, have a lot complaints against them in the records of the Better Business Bureau and the local offices of your state’s attorney general. these companies can often charge you high fees either upfront or in more subversive ways making the overall cost of your debt much higher.
The best sources to deal with for debt consolidation loan is through your own bank or any other reputed bank with an accredited debt consolidation solution. there are also some credit unions that may help you to with taking out a debt consolidation loan.

Borrowing against a Life Insurance Policy

Not many options of taking out a debt consolidation loan unadvisable or desirable. This you are mostly required to put a valued asset online as a collateral.  While life-insurance policy is not exactly an asset is a valued financial security for your family.  Borrowing against the life-insurance policy means that you borrowing against the future security of your family.  As is the case with borrowing against an asset you should borrow against the life-insurance policy only with the intention of paying back the money that you take.  You can usually borrow up to the cash value of your life insurance policy.  Although your insurance company will probably not require to pay back the money as long as the amount borrowed is less or equal to the cash value it is a good idea to make the payments anyway.  If you don’t the death benefit will be used to cover what you borrowed and your survivors may not get any benefit at all.

Borrowing from Retirement

This is another last ditch methods that you can resort to to consolidate a debt.  Most retirement plans allow you to borrow against them under certain terms and conditions.  In most cases you are required to repay the money that you borrow from retirement fund within five years or you are liable to be subjected to penalty and an income tax as it will be considered an early withdrawal.  The same loan will be due to it paid off within 60 days if you happen to leave the job which if failing to do so will make you liable to face early withdrawal penalties.  As with borrowing against a home equity or a life insurance policy think hard before borrowing money from a retirement fund.  It may present itself as the simplest option but must only be used if you are certain to be able to pay off the money you borrow.

Disadvantages of Consolidating Debt

The foremost disadvantage of consolidating a debt comes about when you take out a debt consolidation loan or borrow money against a valued asset such as a home or critical funds such as the life-insurance policy or a retirement plan.  None of these are very desirable options as you are probably using loan secured by your assets to pay off an unsecured loan.  Risking the foreclosure on a home or the financial future of your family is worse than not being able to make the payment on your credit card.  The foremost thing that you should determine before trying to consolidate a debt is to pay off whatever money you borrow for a debt consolidation loans.

Having a reduced monthly burden after consolidating your debt should not make you feel as if the debt has gone away.  It has merely shifted from one place to the other.  Though you may feel the pressure greatly reduced owing to having to make a lower single payment every month, paying off the debt consolidation loan should be made a priority.  Extreme care should be taken to handle credit extremely carefully and to avoid incurring further debt till the time you have completed your debt consolidation.

4 Types of Debt Consolidation Loans

Debt consolidation usually involves taking out one a single low interest loan to pay off the other high interest rate debts.  Combining all debts under the umbrella of a single low interest loan reduces your monthly payments and makes your monthly bills more affordable.  It reduces the combined burden of all your debts and helps you get your finances back under control.  There are different kinds of loans that you can take out in order to consolidate your debt.

Home Equity Loans

A debt consolidation loans, more often than not, is a secured loan.  A lender gives a debt consolidation loan when you provide the security of an asset as a collateral.  In the case of a home equity loan you use the equity in your home as collateral.  Typically you must have a fair amount of equity in your home as well as a good credit rating to qualify for a home equity loan.  Taking out a home equity loan in order to consolidate your debts is a decision that must be taken after careful consideration.  When you take alone on the equity on your home in order to pay off unsecured debts you are putting your home on the line.  If any time in the future it becomes on manageable for you to pay the home equity loan, the lender may demand foreclosure on your home in order to recover his money.

Credit Card Balance Transfers

A credit card balance transfer involves transferring balances on multiple credit cards onto a single card.  The credit card to which the balances are transferred is typically low interest credit card with a lower rate of interest than the other credit cards combined.  This credit card should also have enough credit limit in order to support the additional balance.
There are two important thing is that you should be aware of when considering a credit card balance transfer as a way of consolidating credit card debt.  One, low interest rates on a credit card are often promotional offers.  Before transferring the balance on to the card you should be aware of how long the promotional offer is going to be in effect and when/if the interest rate is going to go back to its higher normal level.
Second, it is possible that your credit rating may be affected negatively by the credit card balance transfer.  Most of the credit scoring models consider something called the balance to credit ratio when calculating your credit score.  Putting too much balance on a single credit account that is very near to its credit limit will reduce the credit to balance ratio and may affect your credit score negatively.

Personal Loan

The advantage of taking a personal loan to consolidate your debt is that it is an unsecured loan.  You are not going to be putting your home, your automobile or any other asset on the line in case there are difficulties in the future in paying off this loan. Because of the same reason it may be difficult for you to get a personal loan if your credit rating has already suffered due to the presence of negative information on your credit report.  A poor credit score may prevent you from getting approved for a personal loan or getting one at a higher rate of interest.
One option is to have someone with reliable financial credentials to cosign with you as a guarantor on the loan.

Debt Consolidation Loans

Debt consolidation loans are provided by banks and credit unions for the exclusive purpose of consolidating your debts.  You will find that many financial institutions offer this service.  It is important to shop around and look closely at different offers in order to choose one that is right for you.  Since the market and specially the Internet is rife with exaggerated and false offers you should be careful as to who you deal with.  Anyone making unlikely claims of wiping out your debts without proving credentials that are  verifiable should be avoided.  Check the complaints in the records of the local business bureau and with the office of your states attorney general.  While you can expect to see some complaints, they should have been resolved by the company.
The best bet is to try and deal with your own bank or any other accredited bank that has a reliable debt consolidation program.  Apart from banks there are other accredited institutions and credit unions that give out debt consolidation loans as well.

You can use any of the above options to take out a debt consolidation loan.  You should however keep in mind that a debt consolidation only reduces the burden of your debt and does not make it go away.  What you are essentially doing is simply shifting the debt from one place to another.  Being charged a lower rate of interest and having to pay a lesser amount of money every month may tempt you to borrow more money on credit.  This will nullify any benefit that you are liable to get out of a debt consolidation loan.  You should practice discipline and responsible credit spending behavior until your debt consolidation loan has been completely paid off or you may find yourself in the same position a couple of years from now.
Taking out a debt consolidation loan should be given considerable thought since it involves taking out a new debt with the possibility of using some of your assets as a security.  Other options that you might consider before taking out a debt consolidation loan is credit counseling and a debt management programme.

Is Debt Consolidation the Solution to Your Debt Trouble

Dealing with debt can be difficult. The larger the amount of debt the more difficult it gets to manage it. Suffering under the burden of borrowed money and not being able to pay off your lenders means that you stand to damage your credit rating in one way or the other.  If you are like many people looking for a solution for getting out of debt without damaging your credit rating too much then debt consolidation is one of the solutions that might have occurred to you.  Here we will talk about some of the advantages and disadvantages of debt consolidation and whether it is the right solution to your problem.

Let us do a quick recap Of what debt consolidation is.  Debt consolidation is the process by which different debts are brought under one single debt.  Consolidating debts is usually done by taking out one single loan that is large enough to pay off all your current loans. Once this is done you only have the one single loan to make the payment towards every month. Not all methods of debt consolidation require you to take out a separate loan in order to consolidate your debts.  For example if you have a balance on several credit cards you can transfer these balances on to one single credit card that has enough credit limit to support the additional load. A balance transfer of this kind is usually made on a credit card that has the lowest rate of interest.  Other methods of consolidating debt is by combining unsecured debt or revolving debt like a credit card with a mortgage loan, taking out a second mortgage or home equity loan. The debt management services offered by a credit counseling service is also akin to debt consolidation since the main purpose of debt consolidation is to combine all your debts into one single loan, preferably at a lower rate of interest.

Advantages of Debt Consolidation

Lower monthly payments. A debt consolidation plan aims to lower your monthly payments in two ways. A debt consolidation usually stretches the tenure of the repayment term that automatically reduces the amount to be paid every month.  Secondly, people aim for a lower rate of interest on a debt consolidation loan or credit card when consolidating their debts.  This in turn also reduces the monthly payment.  It should be duly noted that while the monthly payment reduces the overall amount to be paid maybe higher due to the longer term of the loan.

Easier to manage Debt. When you consolidate all your debts under a single umbrella you are only required to make one single payment at a fixed date in a month rather than having to divide your payments amongst several separate bills. Just the fact that you do not have to deal with separate bills and different due dates and making tedious calculation is every month makes paying off your debts and easier process.

Disadvantages of Debt Consolidation

Your Other Assets May Be at Risk. A credit card company cannot collect on your assets like home automobile if you do not pay off the balance.  But when you take out a debt consolidation loan in order to pay off your credit card debts then your home or automobile may be on the line.  This is because a debt consolidation loan is usually a secured loan that a lender gives only when the borrower provides an asset like home or automobile as a collateral. If you are unable to follow through with the payments on your debt consolidation loan then the lender may use repossession or foreclosure as a means of recovering his money.

You May End up Paying More Money. While the debt management program reduces the burden on your monthly payments the overall amount that you pay during the tenure of the debt consolidation loan may be much higher.  This is simply because the tenure of a debt consolidation is usually stretched out over a longer period of time in order to reduce the monthly payments.

Difficulty in Getting a Debt Consolidation Loan. If your credit rating has suffered damage due to your debt problem already then you may find it difficult to get a debt consolidation loan unless you provide a strong asset as a collateral. Combining your credit card debt with your mortgage or taking out a second mortgage on your home may also prove to be difficult if there is negative information on your credit report owing to nonpayments of your debts. In several cases you may need someone with good credit credentials and financial backing to cosigned with you on the debt consolidation loan.

Is Debt Consolidation the Solution

Debt consolidation can make sense to you if it allows you pay off your debts at a low cost. Debt consolidation loans and services can be sought out from various sources. In the next article we will discuss where all you should look when looking to consolidate your debts.
The debt consolidation may make sense view if it is the only solution that allows you to stay afloat and keep a semblance of your credit rating without using other dire methods like filing for bankruptcy.
Take a closer look at the advantages and the disadvantages of debt consolidation.  It is important to not in danger your and other peoples assets.
Remember that while debt consolidation makes the burden of debt seem lighter it does not actually make the debt go away.  Though it may feel like you have more money available to you every month owing to the smaller payments that you have to make, resist the urge to spend and accrue further credit.
This is especially true sense debt consolidation only addresses the symptom and does not make underlying issues go away.  If the reason why you are facing a debt problem is mismanagement of funds and their responsible handling of credit then you should consider participating in credit education workshops or a session with a credit counselling service in order to bring about the required changes in your spending habits and lifestyle.