In the last couple of years I had several clients requesting for debt consolidation advices, however fewer actualy knew what was debt consolidation at all.

If you are interested in this kind of solution you should know that there are a lot of choices out there, before you choose any of them make sure you get some previous knowledge about it. All financial companies have they're own programs to offer you, but what is debt consolidation all about?

First of all, how do you know that you really need it?

If you are near bankruptucy or are flooded in credit debts the system may have his advantages, here goes a short explanation of how it works and the pros and cons of debt consolidation.

What Is Debt Consolidation?

Debt Consolidation its about merging all your debts (house, car, personal credit...) into one single loan, and therefore pay less, in a single monthly payment.

Advantages

Some of the advantages of debt consolidation are:

• Lower your monthly payments immediatly;
• Less people/institutions to owe money to;
• Better management of payment schedules.

The main advantage is that you can expand your payment deadlines, to shorter loans, here is a quick example so that you can understand it better:

• Lets say you owe 5.000 USD and had to pay it in one year, that means (roughly) 5.000 / 12=416 USD per month.
• Now lets enlarge the deadline to 20 years (240 months), you will then pay just 20 USD per month.

Disavantages

By the looks of all the current commercials it seems very easy to pass all your debts to this kind of credit, however that isn't true.

Financial corporations know that many people that choose this kind of programs have already failed to pay their debts in the past... that's why they created the debt consolidation with mortgage and without mortgage

• Debt Consolidation With Mortgage its the most common, and it consists in giving a real estate property as a guaranty related to your debt.
• Debt Consolidation Without Mortgage its pretty hard to get, however you will not be asked for any guaranty, you can have any bad credit history.

You also need to be very carefull regarding the fact that you will lower you monthly payments and therefore you will be in temptation to make more debts now...if you go this route you will only damage your actual situation even more.

Is Debt Consolidation Worth It?

Debt consolidation itself wont solve all of your problems, the final responsable for your situation is always you... so always pay your debts in time! Debt Consolidation is a small relief for you to organize your personal finances, make a family budget and start creating financial stability.

Before you apply for any debt consolidation program its a good ideia to get a credit report, and after you have consolidated your debts you should also get a credit report every year and see how consolidation helped you improving your credit score.

You can get a free credit report at GoFreeCredit.com.

If you want to learn more about debt consolidation keep an eye on my hubs, I also recommend the following books, all of them are an excelent source of information on the subject: