Debt consolidation is a method that is used to reduce the severity of the debts that you may have incurred over a period of time. Under this method, you can take a single loan to clear all the debts that you owe to different creditors.

Once you do this, you need not worry about multiple repayments every month. You can also forget about harassment calls from creditors, and focus all your energies on making one payment a month.

There are three primary ways in which you can consolidate your debts. The first is to employ the services of a credit counseling company. These companies negotiate with the creditors on your behalf to reduce interest rates, eliminate late fees etc.

This negotiation comes at a price, and you need to do some research before engaging such a firm. This is because some firms charge very high amounts as service fees, a fact which a debt-pressed individual often fails to take into account. You must remember that if the firm saves you more money than it charges you, then it is a good deal.

You can consolidate your debt without taking out a consolidation loan. You can do this by doing balance transfers of your many credit balances into one account. Your goal is to wipe out the balances on any accounts charging a high rate of interest. Also having one interest payment instead of several will always result in a savings.

The third option is to take an actual debt consolidation loan for an amount that you think will pay off all your loans put together. To get such a loan you need to pledge your assets as collateral. The danger is that in case of default, the bank will sell this asset to recover the money. This is a real danger and must always be kept in mind while going for a debt consolidation loan.

When you are buried in debt you are ready to grab at any ray of hope. However, there are some debt consolidation deals that are only going to make your situation worse. You really have to stop and think about what you are doing before you leap into something hoping for a quick fix. Put everything down on paper so that you can determine if consolidating will be a good decision in the long run. Once you look at the big picture you can make a better decision.

You must also remember that debt consolidation is only the first step towards a debt-free life. The more important is repayment of the debt amount month after month, not to forget avoidance of future debt.

Technorati Tags: credit card consolidation, pay off credit cards