Is Debt Consolidation The Answer?

The practice of debt consolidation is quite simple

. For many Americans, it is replacing a number of different credit card or other unsecured type loans with one payment. This is accomplished through the consolidation of debts and usually receiving a low interest loan with which to start a repayment process. The concept is simple. The effects of debt consolidation can be complicated.

On average, Americans carry approximately $5800 per month in unsecured debt. These are largely credit card bills from either banks, department stores or gasoline companies but they also include car loans and personal loans too. As the economy has weakened, people have had to rely on credit cards to get them through some tough times, but the times will become tougher if there's even a stumble on a payment. When reporting payments to credit rating services, it is easy to note when a person starts to be in trouble. For instance, if it is apparent that a consumer is spending more than half the credit card's limit every moth, it reveals some telling information. The consumer no longer has enough cash to meet monthly expenses. The credit rating goes down, and the consumer becomes a higher risk to creditors. Debt consolidation, as an option, allows the consumer to combine all unsecured debt and pay off bills at a lower interest rate. Generally, the consumer gets a loan to start the process, and that loan is secured. These loans are not necessarily easy to obtain. If a consumer is already a credit risk, such a loan will not only necessitate using a home or other real property as collateral, it will mean higher interest rates as well.

So, debt consolidation will make monthly payments lower, and that can get a consumer back on track, but it also means he or she will be repaying the loan over a longer period of time and the total amount will be more than the original debt. Every consumer should question how long it will take to make repayments and see if they can live with the answer for years to come. Weighing the differences between debt consolidation and bankruptcy should be made along with assistance from debt counselors. According to statistics, 64% of consumers plan to reduce their credit card debt and 19% are concerned enough that are turning to outside assistance.

Debt consolidation is one method to help restore a sense of financial well-being, but once the program is in place, the consumer has to continue on a conservative path in spending to make it really work. The spending habits that created the problem in the first place can't creep back and take over again.

by: Vicki Hall

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