Are you struggling with credit card debt? Do you have high interest rates on your personal loans or credit cards? If you are struggling to make your monthly payments to your creditors, you may want to consider contacting a debt consolidation company.

How does a debt consolidation company work?

Debt consolidation is taking out a single loan with one lender and paying one monthly payment to this lender. The lender will then distribute the payment to all your lenders. They will charge you a fixed interest rate on your loan and your lenders will lower your interest rate on your credit cards.

Debt consolidation is a quick fix if you are in a lot of debt. Instead of paying 6 payments to each of your creditors, you will pay one convenient monthly payment. Depending upon the type of debt consolidation loan you agree to, you may have to put up some collateral in case you default on the loan. The collateral could be a car, a home, or another valuable asset. If you can put up something as collateral, you could get a lower interest rate or a lower monthly payment.

If you are considering bankruptcy, contact a debt consolidation company. Depending upon your situation, the debt consolidation company can discount the amount of your loan. They can save you from completely destroying your credit by working with your creditors to lower your current interest rate or reducing your monthly payment amount.

Individuals with higher interest rates on their credit cards or personal loans will benefit from debt consolidation loans. Unlike home equity loans, a credit card will carry a higher interest rate from all the other loans. Depending upon the debt consolidation company, they may charge you higher interest rates on their loan, causing you to pay as much or more money in interest payments. This is why it is important to do your research before you select a debt consolidation company.

Concerns with debt consolidation: Many debt consolidation companies will promise lower interest rates and convenient monthly payments. While they may sound good, their offers are often too good to be true. Several people are tempted to contact the debt consolidation company in the hope that they can pay off their debt within 5 years versus 30. The worry with debt consolidation is that too many people join up and then start accruing more debt within a few years. They feel like they have more money because they are no longer paying each credit card company individually so they start opening new accounts and accrue more debt.

Another concern with debt consolidation loans is if you are consolidating unsecured debt into secured debt.When you convert to secured debt, you need to put something up as collateral. Usually people use their homes as collateral. If you use your home as collateral, you run the risk of losing your home if you default on the payment.

The interest rate you will be charged is another concern with debt consolidation loans. If you have poor credit, you may not even be approved for the loan. If you have fair credit, you are looking at higher interest rates, usually around 22 percent. So while you no longer are paying $500 a month, you are actually going to pay more money over the life of the loan due to the higher interest rate.

Another big concern with debt consolidation loans is the monthly payments to your creditors. Just because you pay the creditor on time doesn’t mean all the money will be distributed in a timely manner. If the debt consolidation company is late when dispersing the money, your credit card company will slap you with additional fees and they may even raise your interest rate again. It takes at least 30 days for the debt consolidation company to get completely set up with all of your creditors so it is important to continue paying all your creditors until you receive confirmation from the debt consolidation company that they have taken over all of your accounts.

Types of debt consolidation

People are unaware that there are different types of debt consolidation. Some of the most popular types of debt consolidation include the following:

• Debt consolidation loans
• Debt settlement
• Credit counseling programs
• Bankruptcy

Alternatives to debt consolidation: If you want to steer clear of debt consolidation companies, there are some alternatives out there. The easiest alternative is to create a budget and look at all your expenses. Take a look at what you can afford to cut out of your monthly expenses. Once you have a list of all your expenses, you can start prioritizing everything. Pay as much as you can to each creditor until the credit card is paid off. Lock your credit cards in a drawer and don’t use them until you are out of debt and ready to control you’re spending. If you don’t have a drawer, freeze them in a Dixie cup. It’s a hassle to melt the ice to get to your credit card and it may be enough to help you realize you will be making a big mistake if you use the credit card. Remember, if you don’t have access to them, you won’t be using them.

Consider taking out a home equity loan instead. Home equity loans usually have lower interest rates and the amount you pay to interest is tax deductible. You may have to pay a set-up fee, but it will be relatively small compared to the amount you are paying to each credit card company. You can also do a cash-out refinancing loan. This loan allows you to refinance your property for more than the amount you owe. You can use the extra money to pay off your debts. This is a great option for homeowners that have only been in their home for a few years because it will extend your mortgage. You could end up paying for the cash-out refinancing loan for 30 years. The downside to home equity loans is that you can lose your home if you miss a payment. You could also owe more money to the bank if you sell your home for less than the loan amount.

Another option you can consider is contacting your auto loan lender. Some auto loan companies will allow you to refinance your auto loan and use the extra money to put toward your debt. While this may look good, it can be bad if you are in an accident or if your car breaks down. You will owe more money than the car is worth, leaving you in a bind.

Zero-interest rate credit cards are another alternative to debt consolidation loans. A zero-interest rate credit card should be used sparingly. If you move debt from card to card, you will start to hurt your credit score. Lenders will take notice of you and flag you as high risk because you shuffle your debt. A zero-interest rate credit card really can help you pay off your debt if you can control your spending. Once you transfer the balance from your higher interest rate cards, start paying as much as you possibly can to the new credit card. Usually these zero-interest rate credit cards last for 12 months, and then the rates will jump up to 8 percent or more.

Consider opening a personal loan if you have good credit. A personal loan can help you pay off your debt sooner and they usually charge you around 12-15 percent in interest. If you have higher interest rates on your currents accounts, this is a real blessing. You can pay a lot less than you are paying the credit card company.

The best thing you can do is to call each of your credit card companies and explain your situation. Try to get a lower interest rate or a reduced monthly payment amount. Most credit card companies will work with their members that have a good payment history and a good credit score. Usually credit card companies will offer you a lower interest rate if you threaten to close your credit card account. Closing an account with outstanding debt will hurt your credit score. Always try to pay off the balance and then keep the credit card open because it will show you have more credit available.

If you are on the verge on bankruptcy, look for a second job. While it may be hard to work two jobs, you need to everything possible to avoid declaring for bankruptcy. Bankruptcy will significantly hurt your credit rating and it will remain on your credit report for 7-10 years. It will be extremely difficult to get a loan if you have declared bankruptcy. Some companies will even pass you by for employment if they notice you have declared bankruptcy or if you have a poor credit score.

Consult a financial consultant and ask for help. Some of these consultants will charge you a low fee to discuss your financial situation. They will be able to review your situation and help you create a monthly budget to help you regain control of your finances.