Thousands of consumers owe more money than they should. The amount of money held by Individuals isn't really a surprise; nobody puts away money anymore. A great deal of the astonishing debt in the U.S. is tied up in credit card balances. Credit card debt is particularly costly, as the interest rates charged on account balances are much higher than for other types of debt. One frequently-suggested answer to the problem of having too much or too many debts is to consolidate them. Is consolidating debt a good idea? Is it the cheap solution that all of the advertisers that promote it really suggest?



Consolidation of your debt, at first glance, seems like a smart move. The average consumer has nearly $10,000 worth of debt, but that debt is often spread among a number of different credit cards. Each credit card has its own due date, rate of interest and minimum monthly payment. Each and every month, the individual must write checks to every single one of his or her lenders. Debt consolidation companies simplify this process by providing just one loan for an amount large enough to cover the balances of all of the debtor's outstanding debts. The borrower then needs to write just one check each month instead of several. If the consolidation loan is secured, as with a home equity loan, the interest rate will be a great deal lower than the rates charged by the credit card loans the new loan replaces. As such, the borrower can commonly pay less money each and every month than she was paying before.

Sometimes, debt consolidation seems sensible. Each individual should closely look over the numbers involved before submitting to pressure from a consolidation firm. Of course, replacing several high-interest loans with one affordable, low-interest loan is appealing, but that doesn't tell the entire story. The actual question is "How much will I pay back in total?" A number of companies promise reduced payments, but those reduced payments are frequently achieved by extending the life of the loan. If you have credit card debts that you may be able to pay back in five years, and you replace them with a home loan with a 25 year life, you might actually end up paying more money in the end, even if the interest rate is lower.

From time to time, what seems to be a good idea is not a good idea upon closer inspection. If you aren't sure if a debt consolidation loan is right for you, consult with a reputable financial advisor.