Debt Consolidation Can Organize Your Juggling Act

By Dawn Handschuh, Personal Finance Writer Archive

debt consolidation help

If you're the average home-owning, car-driving, plastic-wielding, well-educated American, managing all that debt may sometimes seem like an amateur juggling act.

Debt consolidation combines multiple high-interest debts into one low-rate loan, usually with a lower monthly payment but longer repayment period.

Debt consolidation loan offers additional advantages:

  • It can reduce your overall borrowing costs.
  • You only have to make one monthly loan payment, not a dozen.
  • Creditors may agree to lower interest rates and/or reduce or eliminate late fees.

There are two ways to approach debt consolidation — work with a company offering debt consolidation services, or do it yourself.

  • Debt consolidation companies offer an additional advantage by acting as your middleman, negotiating for concessions from creditors and relieving you of the stress of dealing with aggressive bill collectors.

Signing up for debt consolidation services

Debt consolidation companies convert high-interest, unsecured loans (credit cards or medical bills) into one secured loan that's backed by collateral, like your home. Secured loans offer better rates but also carry greater risks.

If you prefer a debt consolidation program, check for complaints against any and all potential companies with your state attorney general's office and state consumer protection commission; while there are reputable groups1, the industry has been plagued by unethical profiteers.

Choose an agency that:

  • Offers a menu of services rather than just debt consolidation help. It could be that debt counseling and a structured repayment plan are all you need.
  • Charges reasonable fees.

Do it yourself

You can consolidate your debt yourself by:

  • Negotiating directly with creditors for lower interest rates
  • Systematically paying off the highest-interest debts first
  • Applying for a loan with a lower-than-average rate from a credit union
  • Transferring the balances on your cards to the one with the lowest rate, or to a new, low-interest card

Low interest rates often don't last, so try to pay off debt before they expire. Read the credit card agreement carefully so you know how long the current rate lasts, whether that rate applies to transferred balances, and what the issuer's late fees are.

Footnote

1 National Foundation for Credit Counseling