All of us have financial commitments and if you have a family or a student there are several of these. Usually we have to pay our mortgages, car payments, student loans, medical bills, old utility bills and credit card balances which we have built over the years. To support all these often our income comes from a single source like our employment or business. And in the economy like this if we often tend to follow the path of consolidate these debts so that we can have some peace of mind. Consolidation can offer relief to the consumers because if we miss a few payments then we might get threatening phone calls from several agencies. On the other side there are financial institutions which often have different plans to “help” you out by consolidating them into one. But are those plans are worthwhile to look at? Will those really going to help in the long run or are these just fantasies? Let us explore.   

    First of all whether we consolidate our debt or not the interest rates we are paying or will be paying will primarily depend upon a few factors like our credit ratings; type of loan, the time loan was taken etc.  A lot of these are not in the control of financial institutions providing you the loan. For example if you have a bad credit history your rates will be higher anywhere, also depending upon the type of mortgage is fixed or flexible there could be different components. The rates will also be decided by the state and federal laws.

    No doubt seeking right kind of consolidation may assist someone to avoid bankruptcy and further damage to their credit history. A company of good repute can help chalk out some plans for individuals depending upon how much can they pay and how much is the debt. If debt is not properly planned it could lead to night mares and bad situations beyond our imagination. Therefore we must plan our debt but we must seek assistance from reliable financial planner who could understand all aspects of our finances rather than selling his own financial products. If the interests rates are falling and you have mortgage with high rate then that could be boon to your financial independence and you should go for debt consolidation but again choosing right kind of mortgage would be the key. And all these could be advised by the planners who not only knows the market better but also understands your situations. Also you can use home equity mortgage to finance certain loans for example a vehicle in certain states and this could lower your overall interest rates and could also have some tax benefits. But on the other side you should not risk your equity at risk and increase your mortgage obligations.

    Positive point of converting a credit card loan into mortgage is that mortgage payment are less impulsive as you can not use that everywhere as you now do with your credit cards. But again this could a personal decision.

    If your credit history is really bad then your might have to go for secured debt consolidation loans. These loans demand collateral against the loan so you will have to pledge any of the values like home etc. as security against the loan. So loan amount will depend upon the value of the property and equity obtained. The interest rates are usually higher for secured loans than unsecured loans. But if you repay the loan amount in time it certainly will boost your credit score.

    There are several debt consolidation traps which we should avoid. And top of the list would be to avoid those companies who promise to take acre of everything. Usually a lot of companies lure you into one easy payment for all your debts at lower interest rates. These companies are usually middleman who promises to negotiate all these with bigger companies and charges around 10% of the total payment. In fact we can negotiate all these by self so why to pay others. There some companies who promise balance transfer at lower interest rates and we easily fall into the trap but those low interest rates are only for a few moths and interest rates are really high if you default on them.