With how low current interest rates are many people are taking on more debt to help solve their existing credit problems. Basically what they are trying to do is to consolidate various high interest credit cards or other loans into one easier to handle and cheaper loan package, preferably with a lower interest rate. But this isn't always the best choice; in fact taking this approach can actually backfire because it is more like relief of your symptoms but not a cure to your problem. In fact 70% of Americans who take out a consolidation loan to pay off high interest credit cards end up with the same if not higher debt load within two years.

The reason that this approach usually doesn't work for people is that they are looking to take on more debt to solve their current debt situation, which is actually a no win situation. All you are doing is adding another creditor to your already long list of creditors, even if you are getting rid of three creditors and replacing them with one creditor you are still in the same boat as before. Not to mention the fact that if you are that far in debt that you are looking at these types of solutions the chances are pretty high that you will not qualify for those low interest rates that you see advertised with credit card consolidation loans. But in some cases these solutions can actually work, in fact your best chance of them being successful is if you are sure that this time around you can be more disciplined about your debt load.

Here is a look at some of the various types of credit card consolidation loans and how they work.

Home equity loan or line of credit:
These types of loans are advertised as the quick and easy way to get out of your credit card debt. The basic pitch for this type of loan is that by using your property's value you can get extra money to consolidate those high interest credit cards and also get a tax break in the process. The reason that you can get a tax break is that in most cases the interest that you are paying on your home equity loan or line of credit is going to be tax deductible, but you need to know that in some cases it can be limited. And just because you are most likely going to be getting a tax break with this kind of loan that doesn't mean it is the best choice. What the advertisements fail to mention is the fact that is you do end up defaulting on your loan you can actually lose your house because when you get a home equity line of credit or loan you are putting your house up as collateral. Something else that you need to know about this type of loan is that the banks will tell you how much you can borrow, but this doesn't mean you need to borrow the entire amount, but the sad thing is most people do and find themselves deeper in debt.

Zero percent credit card:
This option is used a lot by people who do not have a home, but what happens is that credit card companies offer new customers these zero percent interest rates as teasers. What they are trying to do is to get you to switch credit cards by offering you this really low interest rate. But what you need to know is that this is actually only a short term fix to your solution mainly because that zero percent or single digit interest rate is only going to last for a short period of time. So if you do decide to go this route you are going to need to look into how long this rate will last for and once it is over what kind of an interest rate you can expect. Another good thing to know about these types of credit cards is that the low rate only lasts if you pay your payments on time, in fact just one single late payment can cause your rate to jump to the higher amount with no warning. The only way that this type of solution would work for people is if they stay on top of their payments and make sure that they switch the balance to another low interest rate credit card before the previous rate expires, but doing this means opening new credit card accounts which can negatively affect your credit.

Debt consolidation loan:
This type of loan is probably the most heavily advertised solution to your debt problem, in fact you probably see a few in your email box each day. But how these loans work is rather than paying all different creditors at different times of the month with their different interest rates you simply take out one big loan to pay off all of those debts and then make a single payment once a month. The best thing about this method is how easy it makes paying your bills, but just because it is easy that doesn't mean you are going to be saving any kind of money in the long run. What you need to do before getting this type of loan is to make sure that the costs of the new bundled loan will actually be less than what you are currently paying your other creditors. You need to keep in mind that because you are currently having credit problems you are not going to qualify for the lowest rates out there and if you have nothing to secure the loan with such as your house chances are you are going to be paying a higher rate as well. So what you want to do is to figure out the interest and fees from all of your existing accounts to determine the total that you are currently paying and then compare that with the consolidation numbers to figure out which is the better plan.

Debt Consolidation Programs:
This actually only work well for people who have an average of $5,000 or less in unsecured debt, the unsecured debt can be medical bills, credit cards, personal loans, etc. But the goal of the program is to reduce your overall monthly debt, save you money on interest fees, help you establish a budget, and improve your credit rating by paying creditors on time. But this type of program can also help end the collection calls to your house. How the program works is that you have a fixed monthly consolidated payment, which is figured according to the lowest payment amount accepted by all of your creditors. Then once a month you pay the company that you have hired and they in turn pay your creditors what they are owed. But one thing that these programs can do is to reduce or stop your interest fees by working with your creditors. In fact these programs have been known to lower rates that were around 12% up to 24% to as low as 10%, 8%, 6%, or even 0%. But one thing that you need to know is if you choose this type of program as an option then you are going to need to close your credit card accounts, which isn't a bad thing because it will stop your spending which is probably what caused your debt in the first place.

If you are thinking about getting a debt consolidation loan here are some questions to ask before you get the loan.

What fees apply to the loan?
In this type of loan it is normal to pay small service fees, but large commissions should not be paid. If a company wants to charge you huge commissions to reduce your debt go elsewhere.

What is the interest rate on the loan?
In getting this type of loan your interest rate should be a lot less than your credit card rates. The reason for this is that a high interest rate will prevent you from paying off the consolidation loan. You also want to get a fixed interest rate so your payments do not change.

What are the payments on the loan?
The only way this type of loan will benefit your situation is if the payments are lower than what you were paying before the consolidation.

Will the loan adversely affect my credit rating? You want to make sure that the loan procedures are explained to you before you sign the loan, if the lender is not clear on this issue you need to avoid them. Also if the company claims to reduce your debts, meaning you will pay back less than you owe, this is going to have a greater chance of hurting your credit rating.

When shouldn't you use a debt consolidation loan?
If the loan requires you to pay high fees or promises large debt reductions you want to avoid them. A debt consolidation loan should only be used if you cannot manage your credit card debt after you have tried budgeting. You also want to avoid debt consolidation loans that require you to pledge secured assets to obtain the loan.

How should you go about finding a good debt consolidation loan?
Make sure that you shop around and compare the different offers that you are receiving from various companies. Once you have narrowed down your selections go online and find out more on those companies.