Debt consolidation is usually done by taking out a big loan to pays off other smaller loans. This is called a debt consolidation program. Debt consolidation programs can be very beneficial to borrowers, but may also put you at risk of further debts.

When to Use Debt Consolidation Programs

Debt consolidation programs are good for a few situations. If you are paying several different loans off, your life may be easier if you consolidate everything into one loan. You'll only get one monthly statement and make one payment.

Also, you'll find that your monthly debt payments decrease if you use a debt consolidation program that stretches your payments out over a longer period of time. This means that you'll pay out less each month and you can free up some cash.

A tempting (and sometimes successful) strategy is to use a debt consolidation program to manage various high-rate revolving debts. As an example, you might have numerous credit card balances with high interest rates. With a debt consolidation program, you might be able to get a handle on that debt and lower the interest rate that you're paying. In general, credit cards have higher rates and secured loans have lower rates.

Things to Remember About Debt Consolidation Programs

Using debt consolidation programs can help you or hurt you. You should be very aware that all these programs do is shift your debt a debt consolidation program does not eliminate your debt. You owe the money and will have to pay it back sooner or later.

One pitfall of a debt consolidation program is that you may feel like you have less outstanding debt. For example, you'll notice that your credit cards once again have generous amounts of available credit. If you use this credit you'll only dig yourself into a deeper hole.

You should also be aware that you may end up paying more total interest if you use a debt consolidation loan. If you stretch out your payments over a longer period of time, it is possible that your total interest cost will be higher. Of course, it may be worth it to you if you can more easily manage your cash flow today.

Finally, remember what you're risking by using one of these programs. Often, you'll use a home equity loan or a home equity line of credit to consolidate your debt. The consequences of falling off the payment schedule can include the loss of your home in some cases. Credit card companies can't take your home. However, if you pledge your home as collateral in a debt consolidation program then your house is fair game.

How to Find the Best Debt Consolidation Programs

There are a variety of choices, and you should shop around to find one that fits your needs. If you need some ideas on where to start, try this plan:

Local credit unions or banks that you already have a relationship with are reliable sources that are likely to give you a fair deal.

Banks that you don't already have a relationship with might offer you a good deal in order to win your business.

Mailers offering debt consolidation programs already want your business they've mailed you an offer because something about you fits into their desired profile.

E-Lending programs offer increased efficiency and easy processing, but be sure to check the legitimacy of the lender.

In addition to shopping around, you can ensure that you get the best deal by managing your credit. Loans are hardest to get when you need them the most.

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