If you’re like many post-secondary students, you likely racked up quite a bit in student debt during your formal education years. With college behind you and the bill in front of you, the debt is weighing heavily on you. Student loans are taking up a huge amount of your monthly budget. If this is you, it may be the right time to consider consolidating your student loans.

Consolidating debt can typically serve many great advantages: One obvious advantage- rather than making several small payments, consolidation allows one to pay just one payment a month. Not only is this convenient, but it is also helpful for budgeting. Who wouldn’t find it easier to make just one payment, instead of several?

Another attractive advantage is to consolidate your fluctuating rate student loan to a secure, fixed rate, loan with a lower interest rate.

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Television commercials and mass mailings may make debt consolidation seem like a simple process. Often by the end of a 30 second ad, the formerly anxious, debt ridden consumer is smiling and shaking hands with a caring debt consolidation counselor, and all their problems seem to have vanished.

While there are many options available to consumers, the three most commonly advertised forms of debt consolidation are: credit counseling, debt management programs, and debt settlement. Consumers sometimes mistakenly assume that these options mean the same thing, involve the same process, and are interchangeable. This idea is wrong on all accounts.

Credit Counseling is often the first stop for those interested in eliminating debt. It is simply professional help to develop a budget, encourage discipline, and reevaluate spending. This is a good option for people who have a steady income, and have just made some poor financial decisions.

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The process of debt consolidation allows a number of smaller bills to be rolled into one payment that is made monthly. The result is a lower payment and usually a reduced interest rate. For this to happen, a variety of debts are consolidated, which might include medical bills, dental bills, credit card bills, or other types of unsecured loans. With debt consolidation, your finances have become easier.

There are other ways to consolidate debt by working with credit card companies to reduce interests and payments without taking out a secured loan. The method of debt consolidation varies with each financial situation. The question is, who needs debt consolidation?

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One of the solutions that is often advertised to help people get out of debt is the use of a debt consolidation loan. The idea behind a debt consolidation loan is that most people who are in financial trouble have several small debts that require monthly payments. These payments combined become large enough that people generally end up paying just the minimums, and never are able to chip away at their borrowed balance. A debt consolidation loan offers some advantages to other debt reduction alternatives, but also has some negative consequences to be aware of. Some of the pros and cons include:

Pros of Debt Consolidation

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Dealing with too much debt can lead to a great deal of anxiety and stress. If you can barely cover the minimum payments on all your credit cards and other bills every month, a debt consolidation loan may be a good way to get on top of things. There are several consequences you need to consider first, however.

A debt consolidation loan is essentially a loan for the total of all your existing debt. It may just include your credit card balances, or it may go further by covering other debts such as car loans or department store credit. The consolidation loan is used to pay off all the other debts, leaving you with a single monthly payment which is often at a lower interest rate.

Before you decide to pursue a consolidation loan, there are some alternatives that can help with your debt.

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Over the past few years, new lending options have cropped up in banks all across the country. These days equity lines, and loans have become common household staples, and consumers have new and creative ways to borrow money, finance their homes, and consolidate their debt.

While it may seem like an easy quick fix, experts warn against automatically turning to equity lines and loans as a way to reduce debt.

What is an Equity Line or Loan? An equity line offers a line of credit based on the equity that you have in your home, with a variable interest rate. An equity loan is basically the same thing, but instead of a line of credit, the consumer is given a lump sum payment with a fixed interest rate attached. Although the interest rates on equity lines are usually lower, in a fluctuating economy, an equity loan with a slightly higher fixed rate may be the safer option.

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