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Whether debt consolidation is good or not depends on a few things. One of these things is the type of debt consolidation that is done and the other is what you have done to keep from using your credit cards. Debt consolidation is a term that refers to putting several accounts in one place so that only one payment is required each month to cover these debts. The 2 most widely used types of debt consolidation are a loan and a debt management plan.

I would not consider a debt consolidation loan a good way of consolidating debts. It will not hurt your credit and looking at the loan itself, you cannot even tell that it is consolidated debt, because it is secured with your home and the money borrowed could have been used for many different things. The interest is tax deductible, but this is about where the good part of this option ends. This can be paid off in as little as five years or you can stretch out for 20 or 30 years. Just remember that the longer you make payments, the more you will be repaying even if you have a smaller monthly payment.

The bad part of a debt consolidation loan is the fact that it is secured with your home. If for any reason you cannot make your payments, you could lose your home to foreclosure. Another big problem is many people who opt for this method of debt relief do not stop using their credit cards. Statistics say that most people that take out a debt consolidation loan will have credit card debt again within a year. Now you will not only be trying to manage a loan, but you will have credit card payments again.

A debt management plan is your other option for consolidating your debts. You must understand that not all debts can be placed in this plan, but almost all consumer debt is acceptable. This alternative is not a loan and does not require home ownership or good credit. You will only have to worry about one payment per month and you will not be able to use any credit cards placed in the program. The accounts will be closed once they are paid off.

Your interest rates are lowered (usually 10% or lower) and your fees are eliminated. You can be debt free in about 5 years or less with this program. I would have to say that debt consolidation is a good thing, because it is proof that you have a plan for getting out of debt. As long as you do not incur more debt and follow whatever debt relief plan you choose, you will come out farther ahead in the end.

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