Although commonly advertised as the ideal financial solution, debt consolidation may or may not help you. You should consider a variety of factors, including the interest rate of the consolidation loan, the amount you owe and the length of time you have to repay the debt. In the end, it is up to you to decide if you can benefit from a debt consolidation plan, because the lenders will always claim that it will help.



Consolidating debt is the practice of replacing a number of bills, including credit card balances and car loans, with a single loan. Debtors have just one bill to pay each month rather than many, and the new loan's repayment schedule may reduce the monthly payment for the consumer. If the rate of interest for the loan is lower than the rate for the original loans, the consumer can save money. These are definite positives, and many people have successfully used such loans to eliminate financial trouble.

It's up to the debtor to make sure that he or she is better off, though. Consumers with problem debt frequently have poor credit scores, and that can make it difficult to take out loans at favorable rates. If you apply for a new 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 length of the loan. Reduced monthly payments are nice, but if you extend the payment schedule, you also raise the total amount of interest that you have to pay. It's quite possible that by consolidating your debt, you could actually end up having to pay back more money than you originally owed.

Before leaping to acquire new financing to pay off your old bills, you should look at the numbers and see if you will really be better off by borrowing more money. If you can reduce your payments by getting a lower interest rate, you will possibly benefit. If you are merely taking longer to repay, you are likely to pay more in the end. It is up to you to decide if you will really save money, and that may be the most important part of the process. If you aren't good with math, find someone who can help you. The last thing you want to do is make a bad problem worse by taking out a debt consolidation loan that hurts you instead of helping you.