Getting Out of Debt Fast

Debt Consolidation - Is It Right For You?

Debt consolidation combines a lot of little bills into one bigger bill. You can either combine your small debts through a loan or a debt management/consolidation program. If you are constantly juggling payments on car loans, student loans or credit cards than debt consolidation might help you get back on track. Debt consolidation can turn several high-interest debts into one, hopefully lower-interest debt that is easier and faster to pay off.

If you are still making payments on more than just the minimum payment and your payments are on time for a large percentage of your bills, you are probably not in deep trouble yet. However, if your bills are piling up and you are only making minimum payments, than you are probably on the road to big time debt trouble, which means you are facing bad credit, foreclosure and even bankruptcy.

If you have a good credit score right now, a debt consolidation loan through your bank or credit union might be a good option. The biggest benefit to debt consolidation is that all your debts get rolled into one lower-interest loan. Usually credit unions have lower rates than a bank, so if you decide to go with a loan check with your credit union first.

If you own your own home, you may qualify for a home equity loan or line of credit that you can use to consolidate your debts. This type of loan allows you to borrow against the equity in your home and you must use the home as collateral. A big benefit of this type of loan is that you'll usually get a much better rate than an unsecured loan and the interest on the loan is tax-deductible. The biggest risk with this type of loan is that you could lose your home if you default on the loan. If you don't currently have the discipline to pay your monthly bills then this should be your last option.

If you decide to go the debt consolidation loan route, remember this is not a quick fix. It is still a loan and you will need to make consistent payments. While you are paying off this loan, do not open any new credit accounts. Instead lower your spending and use cash or what you have in your checking account. You have to put yourself on a budget and stick to it or you could end up with more debt than you originally started with.

An alternative to a debt consolidation loan is using a debt consolidation service. The debt consolidation service doesn't loan you the money to pay off your debts, instead they will work with your creditors and make arrangements (such as negotiate a lower interest rate or smaller payments) that allow you to pay your debts more quickly and easily. Typically they will combine and collect all of those payments from you in one check and then distribute those payments to each of your creditors. Of course, they will be charging you a fee to perform this service. Be careful of the companies that promise you an extremely low monthly repayment schedule or charge you a high up-front fee for a guaranteed loan. Most of times these businesses are a scam and they don't care whether you get out of debt or not. You can always request the same types of arrangements that a debt consolidation service does by simply contacting your creditors yourself and negotiating with them directly instead of going through a service.

If you don't want to pay the high fees a debt consolidation service charges, you should look at getting some credit counseling along with a comprehensive debt management program. A counselor will help you with budgeting and cutting back and most will offer debt management services where they will contact all of your creditors to arrange lower interest rates and they will also distribute your payments. There are not-profit and private organizations that can counsel you. Some are free while others charge up-front fees or a small monthly payment. Start with the National Foundation for Credit Counseling (NFCC.org), a non-profit organization dedicated to helping the debt-stricken get control of their financial situations. If you are considering an counseling agency outside of NFCC, make sure you find out how long they've been in business and what types of fees they charge.

Regardless of which option you choose, you will need to discipline yourself to keep your spending under control and not incur new credit card debt.