Is Consolidating Debt the Way to Go?

With so many ads on TV and the Internet proclaiming debt consolidation as the answer to financial difficulties, it´s no wonder many people assume it must be the ideal debt solution. The reality, however, is that many misconceptions surround the seemingly simple notion of consolidating credit card debt. In fact, consolidation will not necessarily reduce or even secure a fixed interest rate, and may not expedite your debt relief at all.

Services proposing to consolidate your debt will recommend the following: place several of your debts into the same account, so that you only have to make one single payment each month. What debt consolidators don´t tell you is that this process may not only make no impact on your total debt amount, but it could also prolong the term of your loan.

If you are one of countless people who have credit card debt, another alternative solution that may be proposed to you is to transfer your credit card debts to the credit card that has the lowest rate and highest limit. You might even be enticed by an incentive from your credit card company, offering to raise your limit and give you a low balance transfer rate – perhaps in exchange for putting your house or car on the line as collatoral. Your credit card company likely won´t mention, however, that their rates are subject to increase at anytime.

Another frequently-proposed solution is to transfer your debts to a home-equity loan. The advantage of a home equity loan is that your payments are not only tax-deductible, but also calculated at a much lower rate. However, the key risk involved with a home-equity loan is that it involves using your home as collateral. Therefore, if you neglect to make the payments on time, you risk losing your home.

Some people say that consolidating debt works best in theory rather than in practice. In practice, it can actually prevent the debtor to discharge their debts by filing for