Debt consolidation is the process of combining debts you have into one payment. Sometimes this process can really help your overall financial situation but other times it can just make it worse. There are many different factors that you need to take into consideration before you decide if this may be something that is right for you.

There are plenty of benefits to debt consolidation if you play your cards right. You will have the convenience of making one payment each month instead of several. This can help you balance your finances and even avoid late charges. You can pay for such a payment online or directly from your checking account so you don’t even have to mail it in.

While you may have lower monthly payments now you may be extending the terms of what you originally had. Also, you need to find out what the interest rate is going to be. It could be more than some of your debt involved and less than others. The only way to make sure you are getting a great deal is to calculate each of the balances at their current rate of interest and then compare them to the debt consolidation amount.

There are plenty of free calculators online that can help you come up with these figures. All you need is the balance due and the interest rates to get the right information. If extending the debt and lowering your monthly payments is going to cost you considerably more money in the long run then you need to look at another option.

In order for debt consolidation to really be helpful it needs to save you money. This is very possible but just take the time to make sure. It is very possible that you will need to change your spending habits too. Enrolling in a budgeting class can really help you see where you are getting yourself into trouble.

If you head down the road of debt consolidation you should consider a budgeting class as well. That is if your reasons behind it all are to get more money freed up. Some people end up consolidating debt as they had to get it at a high rate of interest. With this process they get a better rate and they will save money. That is one of the best reasons why you should look into this type of option.

On one hand you have the debt consolidation payment that is all rolled into one. On the other hand though you have all the new debts you have charged up. As a result you may find that you are scraping by to make the minimum payments on the various accounts. It can take years to recover from such a difficult situation.

Many lenders will push debt consolidation as they know consumers will go for it. They also know they can make more money on the interest from such a process. Knowing what your options are is going to give you the power to make the right decision. Look at both sides of the debt consolidation issue so you can determine if you should embrace it or walk away.

Robert Bain is fascinated by the secret credit industry. He follows personal credit related issues such as credit cards, debt relief, equity loans, debt relief services and scams bad credit cards offers.

Debt is not a terrible thing to avoid at all costs. Some people feel comfortable paying for everything right up front. Drive used cars, rent an apartment and pay for school once you have the money for it. All items that we buy either appreciate or deprecate in value over time. Buying a brand new car loses could lose 10% in value the second it leaves the dealership’s parking lot. At that point, if you sold the vehicle, the value of the car would not even pay for the remaining balance due on your auto loan. Even if the driver uses the vehicle for several years and finally sells it, they may still sell upside down which means they did not receive enough money from the sale to cover the loan. Perhaps you need to take out an additional loan to cover the original auto loan. This scenario is a great example of bad debt. A great financial rule is to never go into debt to buy something that loses value over time. One could make an argument that if you wait long enough the value of the car would start to appreciate again. This could happen after waiting several decades. Investing that money into bonds during that same period could result in smarter investment.

On the other hand, good debt is buying an item that appreciates over time. Upon sale, you will have money to pay off the loan and receive additional money to pocket. There are many examples of good debt including buying some homes in a buyer’s market. Working out the math on buying a home to see if you will make money in end is complicated. You can deduct many things including mortgage interest but if you are buying in a seller’s market and selling in a buyer’s market, you may turn good debt into bad debt. The alternative is renting where of course, nothing is tax deductible and you throw rent money away each month. For most people who own a home and fall in the 25% tax bracket, they throw away 75% of the interest they pay each year so there is certainly a trade off. Figuring out if taking on a house debt is more financially healthy than renting is complicated but it could help you decide which one makes more sense.

As college tuition rises, more students want to work first and then go to school so they can pay for it. Perhaps for them the sound of debt is scary but looking at your salary difference should be the reason behind the decision. For example, if you make $20,000 ($10 an hour) before college and $50,000 ($25 an hour) after college that is a difference of $30,000 a year. By waiting to go to school and make money before you go you are actually costing yourself $30,000 every year you delay graduation. You can also look at the ROI, return on investment. College could put you in the red lets say $60,000. If you make $30,000 more per year it will only take 2 years of post college employment to cover you debt. A 2 year ROI is certainly good debt and it will pay off. Simply looking at the word debt without doing some math could result in passing up an opportunity to take on good debt.

Remember to look at the long turn implications of your decision and always observe if buying will incur a debt that will pay for itself and net you a profit.

Michael Russell

Your Independent guide to Debt Solutions

Debt settlement can be done through a professional agency; however, debtors can also settle their debts by negotiating with the creditors on their own. However, most of the people seek professional help and advice while settling their debts. That’s probably the reason why the debt settlement industry has grown so rapidly. Every day a new firm crops up with fascinating debt settlement offers and the sad part is that many people fall prey to such false promises and lose hundreds of dollars in fees and find themselves in worse financial shape. I know dealing with mounting bills and scary phone calls from creditors is frightening but getting rid of this mess is not easy. Going in for a debt relief solution is a decision that should be taken by properly considering the pros and cons and not simply hearing a radio commercial or searching on the net.

Simon Duffy writes for the Financial Blog a UK Finance Blog talking about all aspects of personal finance.