3. Consolidation or CCS

Consolidation does not allow you to obtain a loan to pay off debt. Moreover, borrowing money to pay off borrowed money doesn’t make much financial sense.  Most consolidation companies will consider your total debt with all account holders and take a creditor/bank approved interest rate that your banks have already mandated and recalculate your total debt. This process will put you into a 60 to 84 month program (5-7 years), assuming you never miss those payments. The payments you are going to make however are normally no lower than what you would pay if you had chosen the consolidation plan!

To be fair, debt consolidation is usually a much better option than the 30 year plan or even bankruptcy since it does help to reduce the time that it takes to pay off your high percentage rate debt. That being said, debt consolidation is still, in most cases, setting someone up for failure. If you start missing payments, your rates will be raised and you would not only have been throwing your money away on the payments that you made up to that point, but you would also be in a worse position than you were before.  What you need to know before considering debt consolidation is that only 18% of people finish the program, so your chances of failure are much greater than your chances of success.

Consolidation loans

Essentially, a lending institution will provide a homeowner with a home equity loan that will help 'consolidate' his or her outstanding debts into one monthly payment. The homeowner can benefit from a lower overall interest rate and tax break; however, many consumers' financial situations worsen at this time, causing them to unfortunately lose their home because they have violated 1 of the 10 financial commandments… Never take UNSECURED debt and turn it into SECURED debt.

If you don’t own a home with enough equity accrued then this may not be an option for you at all. Also, if you have less than perfect credit your percentage rate for this type of loan may be higher than the percentage rate you already pay. Nevertheless, you don't want to put the roof that covers your family’s head in jeopardy if you miss some payments in the future because of loss of job or family emergency. Consumers need an efficient way of dealing with their credit problems without causing great harm to their long term financial future.