Peanut Butter Sandwiches - On The Road To Debt Consolidation

Online, February 27, 2011 (Newswire.com) - The phrase "debt consolidation" has a magical ring to most people - especially to those who are in debt up to their ears.

But debt consolidation isn't a magical formula that makes debt disappear in a shimmery pink cloud. You still have to pay off your debt, although you can get a lower interest rate or better terms, in most cases.

One of the best ways to handle your debt is a debt consolidation loan. Since there are companies literally lining up to provide just such a personal loan to each and every person in debt, it's important to know your options and to find out which option is right for you.

But there are some bad debt consolidation moves that a lot of desperate people make. Take note of these debt consolidation loan pariahs and steer clear.

• The hard money loan - The biggest myth about debt consolidation loans is that they're easy to get. If you really need a loan, it's usually because you've missed a few payments and your credit has more dings in it that a 1974 Ford Pinto. And therein lies the problem: a consolidator may try to lure you in with the promise of an easy loan, but end up charging you higher interest rates than you're already paying. Your monthly payment may be lower, but you could end up paying more in the long run.

• "We'll take care of everything." - Beware of debt consolidators that tell you this. They're not fairy godmothers, but they often try to act like them, promising to negotiate lower interest rates and a reduction in your monthly payment. All you have to do is make "one easy monthly payment." The reality is that these debt consolidators have a built-in fee with that payment, which you can avoid by negotiating lower interest rates and working out a repayment schedule yourself.

• Balance transfers - Transferring your balance to a lower-interest credit card may sound like an easy solution, but in the end, it winds up making you look like a bad credit risk on your credit report.

So what can you do?

First of all, handle your own negotiations. Talk to your creditors and see if you can negotiate lower interest rates and a new payment schedule. Creditors want to get paid, so very often, they'll work with you.

Another option may be refinancing your car. It is a secured loan and you can borrow against it. But the danger is that you can run out of car before you run out of debt, so be careful.

You may also want to consider getting a personal loan. If you have reasonably undamaged credit, you may qualify for an unsecured loan at a lower rate than you're already paying.

In the end, the best thing you can do is hunker down and apply some good, old-fashioned elbow grease to your debt, eat a lot of peanut butter and learn to live within your means.