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With the housing market in a slump and many homeowners over extended debt consolidation is talked about more and more.

But what exactly is debt consolidation?

Debt consolidation is basically the taking out of a single loan to pay off many other loans such as credit card debt, mortgage debt, car payments, etc. Debt Consolidation Loans come in many forms and although many consumers can obtain an unsecured loan the majority of debt consolidation loans are secured by an asset that serves as collateral (most often which is a house). The advantage of having an asset behind the consolidation loan is that a lower interest can be obtained thus effectively allowing more of the payment to reduce the principal owed.

Because debt consolidation loans do still have an interest factor involved they are mainly advised where the consumer has a significant amount of credit card debt. The reason for this is that the majority of credit cards charge a substantially higher interest rate and if the consumer has missed payments or made late payments they can be paying in excess of 20% per year. At this substantial interest rate it would be nearly impossible for the average person to pay it off in the short term as these types of scenarios can stretch out for tens of years.

What are the best Debt Consolidation Loans to obtain?

Well, not all debt consolidation loans are created equally. Be cautious of the balance transfer traps as well as creditors who try and get you into loans which actually have a higher rate than your credit cards because of the risk involved in your loan.

So, the best debt consolidation moves you can make are to

1. Take money out of your home in the form of an equity loan. These loans typically carry very low interest rates and depending on the use of the funds can be tax deductible (check with your tax advisor regarding your situation).

2. A cash-out refinance allows you to pull cash out when refinancing your home. This option allows you to then take that excess cash and pay off some higher interest rate credit cards or other high bearing interest rate loans.

Those are perhaps the 2 main options but not the only ones. Other debt consolidation options can include the taking out of a personal loan, car refinancing, and negotiation of better terms with credit card lenders to just name a few.

Regardless of the option you choose make sure you get all the facts and rates before hand so you can make an informed decision. Debt consolidation loans do work but should be constructed properly so that you obtain the lowest interest rate possible. This will allow you to payoff those debts sooner and with less stress.

Diana Lopez has helped thousands of consumers reduce their debt by providing debt consolidation tips which have accelerated the process to becoming debt free. Learn more valuable information on debt consolidation plus the latest tips at the Debt Consolidation blog.

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