Debt Consolidation – Understand Your Options Before Seeking Debt Relief

While relentlessly promoted as the ideal financial solution

, debt consolidation may or may not help you. You should think about a number of factors, including the rate of interest of the loan, the total amount you owe and the length of time you have to repay the debt. Ultimately, it is up to you to determine if you can benefit from a debt consolidation plan, because the lenders will always claim that it will help.

Debt consolidation is the practice of replacing a number of bills, such as charge card balances and vehicle loans, with a single loan. If the rate for the debt consolidation loan is lower than the rate for the original loans, the consumer can save money. Borrowers only have one bill to pay each month instead of many, and the new loan's repayment schedule may reduce the total monthly outlay for the borrower. These are definite benefits, and many people have used such loans to get out of financial trouble.

It is up to the borrower to make sure that he or she benefits, however. People with financial struggles often have poor FICO, or credit scores, and that can make it tough to take out loans at affordable rates. If you apply for a consolidation loan at the same rate or even a higher one than the previous loans, there is only one way that your payments can go down, and that is by extending the repayment schedule. Lower monthly payments are nice, but if you extend the length of the repayment schedule, you also increase the total amount of interest that you have to pay. It's quite possible that by consolidating debt, you could actually wind up owing more money than you originally owed.

Before rushing to take out new financing to pay off your old bills, you ought to do the math and see if you will really benefit from adding another loan to your life. If you can reduce your payments by getting a lower interest rate, you will probably benefit. If you are merely taking a longer time to repay, you are likely to pay more in the end. It is your responsibility to figure out if you will actually save, and that could be the most critical thing you do. If you don't have good math skills, find someone who can help you. The last thing you want to do is make a bad problem worse by taking out a loan that hurts rather than help you.

Debt Consolidation Understand Your Options Before Seeking Debt Relief

By: Christopher Boris

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