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Debt Consolidation

Debt consolidation is usually the preferred way to go if you still have some assets to use as collateral. The objective is to take all of your short term debts i.e. credit cards, charge accounts, etc. and pay them off with a consolidation loan over a longer time period.

For example, many people use a second mortgage or home equity loan and spread the payment over 5 or ten years. Should you take this route, it is imperative that you do not use your cards to run up the debt again or you will be back in the same situation you were in before the consolidation.

Now you will have only one monthly payment that is much lower than your previous payments and usually at a much lower interest rate.

This is probably the best way to get out of debt and will not affect your credit rating significantly. If anything, it may tend to improve it!

Since the total amount owed will be approximately the same as before, over time the credit available will increase and so will your credit rating. As your income increases (hopefully) and your debt is reduced your credit rating improves. Make sure your debt consolidation payment is made on time each month and try to use debit cards or cash for purchases in the future.

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