Debt Consolidation

There are many financial tools out there to help get you through short-term cash flow problems, including credit cards and payday loans. Over time, though, reliance on credit cards can put you into a whole new set of financial troubles. The high interest rates of credit cards often put you right back where you started'in need of money to meet monthly bills. If that need is temporary, a payday loan may be a good answer, but for longer-term debt problems debt consolidation is the better choice.

There are a few basic choices for people struggling with mounting debts.

Bank Loans For Debt Consolidation

Bank loans are one way to start paying off credit card debt. By taking an unsecured personal loan for debt consolidation, you can pay off a portion of your debt at a lower rate. They have the benefit of a fixed payoff term (meaning that you know when the debt repayment will end) but unfortunately, unsecured bank debt consolidation has a few drawbacks. Unsecured debt consolidation loans

• Are difficult to get, and nearly impossible if you've damaged your credit rating.
• Have low lending limits and are often not big enough to payoff debts.
• Require a lengthy and invasive application/approval process.

Sadly, bank loans are not viable options for many people with large, suppressing credit card debt.

Home Equity Loans

Home equity loans and collateralized loans (secured loans against property you own) are another option for debt consolidation. Essentially you take out money against your home or property all over again. The benefit is a solution to your credit crunch through lower payments, but there are, as with all debt consolidation options, downsides, too. Equity loans

• Increase what you owe on your home or property, sometimes to the point of owing more than the market value and hindering your ability to sell.
• Spread debt over the term of the mortgage or loan usually 30 years or more. It's a short-term fix but it still takes decades to pay off your credit card debt.
• Opens you up to racking up more credit card debt and beginning the cycle of debt again.

If you have equity in property this is an option to explore, but do so carefully as borrowing against your home is a serious decision that could have more serious repercussions if you fall behind on larger mortgage payments.

Debt Consolidation Programs

Debt consolidation programs can affect your credit rating, but when you are deep in debt and other options are not beneficial they are a good way to get out of debt in just a few years, with only relatively minor damage to your credit rating.

Under a debt consolidation plan a third party credit counselor will work with you and your creditors to construct a payment plan that pays off your debt (usually in 3-5 years) at lower rates. Lower interest rates are negotiated with your lenders and all your qualifying credit card payments are rolled into one, more manageable monthly payment.

Debt consolidation through credit counseling does have some drawback, primarily in the form of lowered credit scores. But the damage is minimal as compared to the alternatives missed payments, late payments, or making no payments at all. Once you start making timely payments, your credit score will begin to rebuild (the benefits begin normally after just three timely payments).

The advantages to credit counseling debt consolidation are

• Easier qualification this is a program designed for people in debt who are struggling.
• Potential to rebuild credit sooner than bankruptcy or damaged credit due to missed payments.
• Pay off debt faster; most people are out of debt in 5 years.

Each debt consolidation option has its pros and cons, but often the alternative is much better than continuing to struggle and paying off high interest credit card debt over decades. Without such programs many people will never see an end to their debt, and will always live under financial pressure. Given the alternatives, debt consolidation programs are the best way to regain financial and life freedom.