Debt consolidation is one method consumers can use to help get themselves out of debt. It's simply taking all the unsecured debt and loan balances including credit cards, and replacing them with a new loan, usually at a lower interest rate.

Other methods include debt settlement, credit counseling programs and bankruptcy.

Debt settlement is negotiating with each creditor to pay off the loan balance at a much reduced level. Creditors realize that they may only receive 25% to 75% of the balance owed. However if the debtor defaults on the loan and declares bankruptcy the creditor would receive nothing. Creditors may not take the efforts of the debtor seriously enough to settle. Until the debt is settled by payment the creditor can proceed with legal action and with collection efforts.

There are consequences of debt settlement. The unpaid balance affects credit reports. The forgiven balance may be considered income and consequently taxes may have to be paid.

There are companies who provide debt settlement services on behalf of the debtors. These companies charge a fee, sometimes several thousand dollars.

A credit counseling program works with the debtor and negotiates with each creditor to reduce the balance, interest rate, and late fees. A new total monthly payment is established. The debtor pays the credit counseling service the new payment plus a fee for their services. The service subtracts their fee and the pays each creditor the agreed to amount.

Bankruptcy is a legal method of debt relief. The debtor declares that he or she is incapable of paying their debts. Unsecured debts may be discharged completely. Secured debts, such as a car loan or mortgage can be brought current over the time period of the court order, usually 3 to 5 years. The creditors have no choice but to accept the fact the debtor is no longer legally obligated to pay the debt. Bankruptcy can have a disastrous effect on the credit rating of the debtor, and the ability to obtain a home mortgage, new debt or car loan. In addition many employers routinely procure a credit report on potential employees and take that report into consideration during the hiring decision.

Debt consolidation isn't for everyone. It doesn't make sense if you have just a few unsecured loans you can pay off by tightening your budget a bit. It does make sense if your financial worries keep you up at night trying to figure out how you're going to make all your credit card payments, car payment, house payment and other payments and keep food on the table.

Debt consolidation is simply taking a new loan and paying off all your debts, or as many of them as feasible. The new loan can be obtained in several ways.

Apply for a credit card with an available credit balance substantial enough to cover your debts. Then transfer the balance of each of your old cards to the new card. Make sure that the interest rate on the new card is low and doesn't expire after a limited time period. Most people who are considering debt help may not be able to take advantage of this method. They won't qualify for enough credit or for a low enough interest rate.

If you have a home with equity built up. You can refinance the mortgage and use the proceeds to pay off your credit card debt and other debts. Usually mortgage rates are much lower than credit card rates. And of course the term, or length of the mortgage, is much longer so your new payment will be significantly lower than the total of your old payments.

A home equity loan is another alternative. The original lender may be willing to provide a home equity loan or a new lender may be interested. Again since the term for the home equity loan is longer, your payment will be lower.

There are companies that provide debt consolidation loans as a service, either lending money directly or acting as a broker and finding you a lender. In most cases the debt consolidation loan must be secured against an asset: your home, car, or bank account.

Over-Your-Limit-Fees
Historically when you reached your available credit limit any further purchases were declined. Now the company will approve the purchase and then hit you with a hefty over-the-limit fee, as much as $50.00. But that's not all. Unless you pay the over-the-limit fee and bring your balance back under the limit, you'll continue to get hit with that fee every month. It can add to your balance quickly because you'll have to pay interest as well.

Check your balances every month. If one of your cards is getting too close to the limit, leave it at home or make an extra payment.

Temporary Low Rates

As an enticement to get new card holders, companies offer a ridiculously low interest rate. But check the fine print, that low rate may only be good for six months, sometimes less. You may find that after you've switched your balances from your old card to the new so called low interest card that you're paying more interest than ever when the low rate expires.

Switch in Rates After You've Signed Up

Credit card companies can change the rates to anything they want anytime they want. Just because they promised you a rate of 0% doesn't mean you'll get it. And it's all perfectly legal. When you sign the application you are agreeing to a change in terms with only 15 days notice. You may think you're getting 0% but when the card arrives and you use it, or switch your balance over, you find out you didn't "qualify" for the lowest rate. The new interest rate may higher than your old one.

States do have usury laws which put a cap on the amount of interest that can be charged. But credit card companies have found a way around that. Two states, South Dakota and Delaware, have no limits on interest and guess where most card companies operate from?

Read the credit card application carefully so you won't be surprised when your first bill arrives.

You can reduce your credit card debt.