Debt Consolidation Online:

Is it A Good Idea?

If you have lots of debt, consolidation may save you time and money. Depending on your financial situation, there may be a solution that's right for you.

• Debt Consolidation defined

When you're struggling with lots of debt, debt consoldation may be an attractive solution. This term refers to combining your debts into one, and making one monthly payment to one creditor instead of making multiple payments to many creditors. You might even get out of debt faster and save money along the way. Debt consoliation comes in several forms, including credit counseling, balance transfers, and debt consolidation loans, so review your options carefully before making a decision.

Debt relief plans offer many benefits that may help you get a handle on your unsecured debts, such as:

• Lower monthly payments
• Reduce or eliminate interest rates
• Eliminate late fees

Balance Transfers

Transferring debt from a higher interest rate credit card to one with a lower rate can save you money. If you have a credit card with a low interest rate, you might consider transferring the balance from a high-rate credit card to the lower rate one. Or, you might apply for a new credit card with a lower interest rate. Be careful about introductory rates, also called teaser rates. Make sure you know what rate will be in effect after the first couple of months. If it's too high, this option may not be your best choice.

More About Teaser Interest Rates

Read the small print about credit card teaser rates. Teaser rates are often used to entice you to transfer a balance. Be sure to consider the following before you fill out the application:

• Introductory rates typically last a short period of time
• While some may last up to a year, it's not uncommon for the low introductory rate to expire after three or six months. After the introductory period is over, the interest rate will increase, sometimes to a very high rate.
• The credit limit may not be high enough
• Companies that offer balance transfers may not give you enough credit to transfer all of your debt. You'll be paying part of your debt at the original higher interest rate and part of it at the lower introductory rate.
• There may be a balance transfer fee
• Be sure to find out if there is a balance transfer fee and how much it is.

Debt Consolidation Loan

You can apply for a debt consolidation loan at most financial institutions, like banks, credit unions, and finance companies. There are two types of loans:

• Unsecured - no collateral is required
• Secured - collateral is required

Unsecured loans are commonly referred to as personal or signature loans. Examples of a secured loan include a home equity loan or a second mortgage since your home is used as collateral. To learn more about home equity loans, read the related articles listed in the Library section.

Is a Debt Consolidation Loan for You?

When you consolidate your existing debt and pay it off with a debt consolidation loan online, you are trading several debts for a single debt. Even though you still have the same amount of debt, you may find this beneficial if you:

• Get a loan with a lower interest rate than the rate(s) you are paying on your existing debts
• This could save you money during the life of the loan depending on the term and amount of monthly payment. Don't forget to do your homework when investigating interest rates and monthly payments. A small difference can impact you greatly.

• Close your credit card accounts

• Paying off multiple credit cards with a debt consolidatio loan may be a good idea, but be careful about racking up more debt on the open accounts. Think about keeping one account open for an emergency and closing the others. Not only will that ensure you're not tempted to charge additional items, it'll also look good to future lenders who review your credit report.

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