Debt Consolidation

Once you've found yourself in debt it may feel like a downward spiral from which you don't know how you'll ever regain your footing. It's hard enough to find simple answers and may seem impossible when the collection agencies constantly call your house and threaten the security of you and your family. Ultimately your decision to choose a debt consolidation loan, a debt management program, or a consumer credit counseling program to consolidate credit card debt should be based on your finances and your monthly earnings.

President Bush says he will sign the bankruptcy reform bill that will require credit counseling before individuals file for personal bankruptcy.

Congress moves to make credit counseling mandatory before filing bankruptcy.

Debt Consolidation can:

• Help avoid filing bankruptcy
• Eliminate creditor harassment
• Lower debt payments up to 50%
• Provide one monthly payment

Keep in mind that you can consolidate unsecured debt with credit counseling without taking out a loan.

The advantages of a debt consolidation loan is that you may consolidate secured debts in addition to credit card debts and interest charges may be tax deductible (if the new loan is secured by a mortgage).

Debt Consolidation Programs benefit consumers with an average unsecured debt of $5,000. Unsecured debts include credit card debt, medical bills, service charges, personal loans, signature loans, store credit or charge accounts, gas charge accounts and certain installment loans. They reduce overall monthly debt, save on interest fees, help you to establish a monthly household budget, improve your credit rating by paying creditors in a timely fashion and end collection calls to your house.

Your "fixed monthly consolidated payment" is calculated according to the lowest payment amount accepted by your creditors. The agency you have hired will distribute the amount of your "fixed monthly consolidated payment" to each creditor. Most creditors will only reduce or stop your interest fees if their minimum payment is met, but if so, the interest rate reduction with these programs can range from no change to the freezing of interest depending on the creditors policy. This can save you thousands because rates that are usually 12%-24% can get reduced to 10%, 8%, 6% or 0%.

The most important benefit of debt consolidation is that it can offer a fresh start on the road to more healthy personal finances.

Usually upon entering a debt management or credit card consolidation program you would have to close your credit card debt accounts (as well as others). This is a benefit because it will help curb your current spending and it's probably what method caused your debt originally. Sometimes you'll find that you can still own one or two credit cards for emergency or if it's "secured".