No Matter How You Spell It Debit Consolidation Is Trouble

Many of us are deeply in debt with the downturn in the economy and the record high unemployment rate. Turning to debit consolidation as an answer seems to work well for some and not so well for others. Lets walk through the positives and negatives of debit consolidation and discover if this is a potential solution for you.

The base idea of debit consolidation is to get a fixed longer term interest rate to deal with your indebtedness. Another advantage is getting one single payment versus making a large number of smaller, but more expensive payments. Many credit card interest rates have now risen to 30% or higher. Loading all your debts into one loan can be beneficial, IF you have the discipline to throw away all your credit cards on a permanent basis. The downfall of most people who enter into debit consolidation agreements is their failure to get rid of the credit cards. The temptation to spend on plastic when the credit is there can be insurmountable for many people. If you are one of those who doesn't have the control to limit your spending, you might want to consider a different option to manage your debt other than debit consolidation.

Debit consolidation normally requires securitized assets before a loan is issued. These can be done with a Home Equity Line of Credit (HELOC), a new mortgage, or other type of property you already own as security for the new debit consolidation process. Financial companies see these type of loans as somewhat risky, and will charge a higher rate but over a longer term than the open revolving credit lines that are available in credit cards.

With the financial downturn, many assets have also lost significant value, making debit consolidation an even riskier and more difficult proposition for most borrowers. As with any loan, make sure you understand the terms of repayment. Pay special attention to any balloon rates you may encounter that can make debit consolidation go from a difficult process to a disastrous one.

Using debit consolidation loans can be a positive experience if you can control your personal spending. There are two major considerations. You must have assets that can be used as security for the loan. And you must commit to a different lifestyle than the one that got you into trouble in the first place. Recognize if you are considering debit consolidation you are in a bad situation. Only you can make the changes needed to get yourself back to level.