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Is Debt Consolidation a Good Idea?
By Kari Johnson on June 3, 2011

debt-problems-(1).jpgWith more debt piling up in the lives of the average American, more Americans owe more money to more people.  If you have a lot of debt, you may have heard of debt consolidation.   But is debt consolidation a good idea?  The question you should really be asking is if debt consolidation is a good idea for your situation.

If you owe money to more than one company, it may simplify your life to have just one payment each month instead of having multiple bills.  With consolidation, the question is who you will be paying once a month.  One method involves taking out a loan so that you will pay the bank each month.  In another method, you would pay a consolidation company monthly.  The company may cost you fees, so you would need to see if it is worth that price.

If you decide to get a loan from a bank, your interest rates will depend on your credit score.  You will want to shop around for the best interest rates, and if the interest rates you find are higher than the ones you pay before consolidating, it is a bad deal.  Even if it is simpler, having to pay more money through interest will not solve your problems but can increase your debt.

The two main advantages to consolidating your debt is that you have only one payment each month, usually of a lower amount than you were paying total for all of your bills.  In fact, the other advantage is that you may end up paying less money overall.  If you choose the right loan or program, the interest you end up paying may be less through consolidation.

Furthermore, if you are facing late fees on top of the piling interest and debt you owe, consolidating your debt can keep you from having to pay those fees, as you would be paying all of the debt at once.  It can then keep your credit score from dropping lower due to unpaid bills, so long as you take care to pay the bills for your loan or consolidation company in full and on time.

Considering these things, you should still do your own research before deciding if debt consolidation is a good idea.  Every situation is different, and you need to look at whether or not debt consolidation is a good idea for you.
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