Is Debt Consolidation Bad Or Good?

The quick answer to the question "Is debt consolidation bad?" is...

Well, it depends.

In other words, it depends on YOU. And more specifically, your current financial situation, your financial discipline, as well as your need for some outside help to get you out of debt.

But before we jump in and take a look at whether debt consolidation might be right (or wrong) for you, let's make sure that you and I are on the same page as to what exactly debt consolidation is.

Debt Consolidation Is Not A Loan

When you see companies advertising debt consolidation, they are usually not offering loans. What they are offering is better described as debt management and/or credit counseling. Let me make that clear...

They are not offering you a new loan to pay off your existing debts

So what are they offering, you ask?

You Are Not Consolidating Your Debts

The name "debt consolidation" in itself can be misleading. The fact is, with this type of debt reduction plan, you do not actually consolidate your debts. What is consolidated is the monthly payments of your debts. Let me explain.

When you enroll in a good debt consolidation program, the company will begin by dealing with your creditors on your behalf. (For arguments sake, let's say you have four separate credit cards with outstanding balances, and therefore currently make four separate credit card debt payments every month.) Once you begin the program, instead of making four payments per month, you would only make one payment to the debt consolidator, who would then make the four payments to your creditors on your behalf. Hence, these type of companies consolidate your debt payments, not your actual debt.

I hope that isn't too confusing!

Now before we tackle the debt consolidation bad vs. good question, here are just some of other the things that a debt management program can do for you...

• reduce the interest rates on your outstanding, unsecured debts
• reduce the monthly payment amounts on those debts
• help you improve your money management skills
• reduce the overall amount of money it will take to pay off your debts
• relieve the pressure and stresses of dealing with creditors
• simplify your life by requiring only one payment per month to meet all of your debt obligations

Is Debt Consolidation Right For You, And Do You Qualify?

Your situation is unique. In fact, everyone's financial situation is unique. Having said that, debt consolidation is not for everyone. BUT it can be an extremely valuable piece of your overall debt relief plan.

The first thing you should do is determine whether or not you even qualify for debt management. If you answer yes to the following three questions, you will likely qualify...

1. Do you have an income that will allow you to make monthly payments?
2. Do you have at least two separate unsecured debts that you need to pay off?
3. Do those debts total more than $2,500

If you answered yes to those three questions then you will likely qualify.

So... Is Debt Consolidation Bad Or Good?

The key thing to remember here is that debt consolidation (or any other debt help program for that matter) is not some sort of instant miracle cure that will get you out of debt for pennies on the dollar in a couple of weeks. And not everyone who is facing debt problems needs to enter a full blown debt consolidation program. For some folks a little bit of help organizing their finances and preparing a workable, detailed budget is all they need.

My best advice? Speak to a reputable credit counseling company, have them do a free financial analysis for you, and then discuss your options if it is determined that further debt help would be beneficial given your situation.

The question you ask shouldn't be "is debt consolidation bad or good" but rather "is debt consolidation right for me"?