What Is Credit Consolidation?

The term consolidation can actually mean one of several different alternatives. But what it boils down to is that you're combining all of your debts into one payment. You're doing this to lower the amount of interest that you pay and get a lower, more manageable payment. In many cases, you cut down the time that it takes to repay the obligations. What are the different kinds of debt consolidation that are available?

One popular method of credit consolidation is through the use of a secured loan. Many times, people will either get a home-equity loan or refinance their existing mortgage. Either way, they are putting up a secured asset (the house) as collateral to pay off their debts. They can get the money out of the equity in their house and pay off the extremely high-interest credit cards. This is essentially like trading 25% interest for 6% interest approximately. You are also spreading the payments out over 30 years in many cases. Therefore, it's actually pretty expensive over the long run. However, it is better than not being able to make your minimum credit card payments each month.

Another very popular method is the debt management program, a type of credit counseling debt relief. There are many companies that offer this type of service. Essentially, you're enlisting the help of an outside company to renegotiate the interest rates that you are charged from your credit card companies. You will pay the company a certain lump sum each month that is usually deducted from your checking account automatically. They in turn, make the payments to your credit card companies for you. You'll pay them a monthly fee to do this for you. While it isn't always fun to pay another fee, they can offer you the help that you need. They can usually get rid of any late fees that you owe the credit card companies as well.

Becoming debt free for life is one of those things that is never enjoyable. In many cases, it's simply about buckling down and making a decision that you're going to get out of debt. You work a little harder, save a little more and before you know it, you've gotten rid of the debt. Credit consolidation is just a tool to help you get out of the hole a little faster.

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