More Americans are swimming in debt than ever before because of the struggling economy and a high national unemployment rate. Because of the increase in financial problems, there is also an increase in the demand for debt consolidation loans and the services of debt consolidationpanies. The question is: should you be turning to thesepanies for help or is debt consolidation something you can tackle on your own?

What Is Debt Consolidation?

Debt consolidation is thebining of your debts into one payment. Typically, this is achieved by establishing a new loan that has a lower interest rate than the rates you are paying now. Several different ways exist that you can go about obtaining a debt consolidation loan. The loan may or not be called a debt consolidation loan, but if you turn to a debt consolidationpany to achieve the consolidation, then it is a debt consolidation loan.

One important factor to keep in mind when you choose to consolidate your debt through apany is there are limitations on the types of debt eligible for consolidation. Debt consolidationpanies are only able to help you with unsecured debts. Unsecured debts include those that do not have asset associated with the debt, such as credit cards. Secured debts like a home loan or an auto loan are not eligible for debt consolidation with a debt consolidationpany.

Working with a Debt Consolidationpany

When you work with apany, you work directly with a representative that goes over your debt and determines which accounts are eligible for consolidation. The representative may contact the creditor and try to negotiate lower interest rates or a balance reduction. Once the negotiations areplete, the debt consolidationpany extends a new loan to you with a set interest rate and monthly payment that you make directly to the debt consolidationpany. To set up this new loan, the debt consolidationpany paid off the existing credit accounts that were a part of the consolidation.

The problem with using a debt consolidationpany is that it does not always leave you in a better situation than the one you were in originally. First, thepany charges you fees for its services. Second, the interest rate on the debt consolidation loan may not be lower than the overall rate you were paying on the original debts. Third, the term or number of years of the loan may extend beyond the length of time it would have taken you to pay off your original debts.

DIY Debt Consolidation

It is possible to consolidate your own debt without the help of apany. Start by contacting your creditors and entering into negotiations with them on lowering the interest rate on your accounts or reducing the total balance you owe. The negotiation process takes time, but is worth the effort. Before you obtain a loan to pay off your old debt and consolidate it into new debt, do the math on what the total amount is that you will end up paying with your financial situation as it is and what it will be if you use the consolidation loan. If consolidating your debt ends up costing you more money in the long-run, then it is not worth doing.

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