For many of us, getting into debt is gradual. First, you buy a new car, or maybe just really nice Christmas presents for everyone for a change. An out of pocket expense looks a lot more expensive if you are paying cash; but if you can get by for the low, low payment of $30 a month you probably figure that´s not a big deal. You know you´re responsible and besides, you have a good job. Or maybe you need something big and the store gives you a no interest loan to cover the cost of the item. Then you get all these credit card offers in the mail and some of them are really compelling. Pretty soon you find yourself with a half dozen credit cards-each carrying a balance-plus an account at the furniture store and a department store or two. It´s manageable because you are still making the monthly payments plus some. It´s cool.

Then, inevitably, something really big needs to be replaced. Or maybe the bonus you expected is half what you planned. Or there is a medical emergency for which you have out of pocket expenses and a deductible. Suddenly, you find yourself stretching to meet your minimum monthly payments. You might get caught in the trap of borrowing from Peter to pay Paul-borrowing cash from one credit card to make the payments on another. And deep down, you know you´re in trouble. One solution you might consider is debt consolidation. The question is: Will it really solve your financial problems?

Advantages
Making and sticking to a budget is always a challenge. A debt consolidation loan can make handling your payments more manageable. It can provide the means to develop a workable budget, so you can get control of you finances. Owing money is hugely stressful, especially when you know you are too close to the edge to be comfortable. You´ll only owe one lender-not a dozen-and that alone can reduce the stress of meeting and paying multiple debts. If you are carrying a variety of debts and not paying your creditors off in full every month, then you are also paying finance charges, which can run from low rates of 6% to a high of 18-21%. If you are carrying interest-free debt with a final deadline for full payment but miss the deadline, you are then liable for substantial interest changes that are retroactive to the date the loan was originated. A debt consolidation or home equity loan can significantly reduce some of the high interest rates. With the home equity loan the interest is generally tax deductible. A debt consolidation loan may allow you to extend the term of the loan. Instead of paying the loan off in six months, a term of a year or 18 months allows you to reduce total monthly payments. Instead of struggling under a half dozen large payments, you´ll often be able to make a monthly payment that is considerably less. And you´ll have only one payment to make. That translates into convenience. If you´ve ever forgotten to mail a bill, you´ve seen the penalties that accrue even if the payment is only a day late. A single payment reduces the risk that you´ll forget. Late payments also affect your credit rating, so avoiding them is always a Good Thing.

Disadvantages
Before you sign on the dotted line, be sure you understand yourself and how you got in this situation in the first place. The major disadvantage of a debt consolidation loan is that if you lack self-discipline or think the debt problem is resolved, you may set yourself up for major financial problems in the future. Some people see debt consolidation as the fix, but they don´t change their spending habits. Instead of cutting up their credit cards, they give in to temptation and run them up again. Then they have the high interest rate credit cards and the debt consolidation loan. If they let it get too far out of hand, they run the risk of ruining their credit at the least and possibly ending up in bankruptcy court. In today´s database-driven world, living down a bad credit history takes years. Should you need credit, you can get it, but only at loan shark interest rates. One of the advantages of debt consolidation can also be a disadvantage. Sometimes by extending the period of the loan, you may actually increase the total debt. By making smaller payments you may be making them much longer and that may cost you more in the long run. If your debt consolidation loan is secured by property or other assets, then the creditor has to give permission to sell or transfer the property. It´s often smart to get a home equity loan to consolidate consumer debt, but you have to remember that any failure to repay the loan can jeopardize your home ownership. For all intents and purposes, the lender owns a portion of your assets. Some loans may also require a co-signer. The risk to a co-signer is that if you default, they are liable. This can cause huge problems in a family, and it´s a sure way to lose friends.