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Consolidating Debt - The Right Thing to Do?
by John Campbell
If you are in the frustrating position of paying off debts that are becoming too expensive to manage you may want to consider debt consolidation.Typically, as your debt increases, the amount of interest you're paying on your debt can make i

If you are in the frustrating position of paying off debts that are becoming too expensive to manage you may want to consider debt consolidation.

Typically, as your debt increases, the amount of interest you're paying on your debt can make it difficult, if not impossible, to ever get ahead. A car payment, mortgage and credit card bills can add up very quickly and leave your bank account next to empty. If you aren't careful you'll end up with monthly interest payments that are so high you'll only end up making interest payments each month.

Debt consolidation is designed to help ease the burden of runaway debts and out of control interest rates. Many credit card companies, banks and other financial service companies offer low interest rate balance transfers or debt consolidation loans. These balance transfers or loans typically have a low interest rate for a fixed period of time and can save you a lot of money that would otherwise be eaten away by high interest payments.

Although it can be an excellent way to reduce debt, consolidation is not without its own risks. A single missed or late payment could result in your low interest rate rising even higher than you've had to pay before. Credit card companies, in particular, can jack your rates up if you have any late payments on any of your debts, even utility payments. Make sure you read the fine print before signing up for any debt consolidation plan.

Refinancing your home is another risky method of debt consolidation. Also known as a second mortgage, any failure to pay off a home refinancing loan can result in your losing your home.

Low interest credit card balance transfers are often excellent ways to reduce debts - in the short-term. If you have excellent credit you can usually qualify for no interest balance transfers. If you can't pay off the balance within a specified period of time, however, your interest rate will increase once again. Have too many combined debts and you're going to end up with a higher interest payment than you ever had before.

You should find out if there is a fee to transfer balances onto one credit card. This could either be a flat sum or percentage of the debt you plan to consolidate. In addition, your credit score can be lowered if you are opening a new credit card account for the sole purpose of consolidating debt.

Consumer Credit Counseling (CCC) and Debt Management Programs (DMP) are two other forms of debt consolidation that may be available to you. With these forms of debt consolidation, a credit counselor or debt manager can work with you to try and establish a workable budget that meets your needs and pays your debts. Credit counselors will usually advise you on ways you can reduce debt while debt managers can take over your payments and assign you the left over cash to pay your living expenses.

Consolidating your debt can be a rewarding or risky proposition depending on your financial situation. Only careful planning and a full understanding of the pros and cons of any debt consolidation plan will help you get ahead financially.


John Campbell is the writer and editor of CashBuzz, A financial portal for the rest of us. Check out for the latest articles on money management and tips and tricks that can help improve your finances. This article may be reprinted on your Web site if the copyright, author information, and active link are included.

The site is not responsible for any content in it. E-mail: alldir[at]gmx[dot]com
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