Sometimes when you are drowning in debt, shaving a hundred bucks (or less) off of you monthly payments could be the difference between bankruptcy and surviving another month.

Debt consolidation loans offer the chance to do just that. You can pay off all of your credit cards and loans, and lower your interest rate to boot. What's not to like?

Consolidation Loan Benefits

• Lower your interest rate. Consolidation loans work because they come at a lower interest rate than you are paying on average. This lower rate reduces your monthly payment.
• Reduce your monthly payment. The lower interest rates mean a lower monthly payment. Note that this doesn't necessarily mean a quicker pay off time.
• Combine all of your different payments into one monthly payment. This saves you time by only having to pay one fixed amount each month. No more tracking different payment dates and payment amounts for different creditors. This also greatly reduces the chances of missing a payment by overlooking one payment of many.
• Reduce pay off time of credit cards. Most credit cards will take thirty years or more to pay off by making minimum payments, so consolidating will help pay them off much sooner.

All of these benefits are good, obviously, and IF you are a person who finds yourself in debt due to a one-time occurance (job loss, illness, natural disaste, etc) then a debt consolidation loan is probably your friend. You can take the money leftover that you would have paid on interest charges and use it to pay living expenses or dump it on the balance of the loan and pay it off sooner.

On the other hand, if you are in debt as a result of the accumulation of bunches of small (and sometimes) large decisions, then you may want to think about staying away.

Consolidation Loan Problems

• Lower monthly payments may take away the urgency you felt before about your debt. Since you can hopefully breathe again, you may begin to feel as though you aren't in all that much debt. The extra cash in your pocket each month may feed your destructive spending habits.
• Zero-balance credit cards. Having credit cards with no balance is typically a bad idea for someone with less than great financial skills and discipline. It will be all too easy to buy something on credit with the promise to yourself that you will pay it off when you get your next check. That usually doesn't happen, and even if it does at first, it will stop happening shortly.
• Lowered payments can lead to a longer payback, if you are consolidating several loans. Often times the new loan will require longer to pay off at a significantly lower monthly payment, even with less interest.

  Many people who get a consolidation loan find themselves back in the same spot with maxed out credit cards in a couple of years time. Only now they are also paying on a consolidation loan in addition to the credit card accounts, so they effectively doubled their monthly debt repayment. Over on Dave Ramsey's website they estimate that 78% of people who take out a debt consolidation loan wind up in the same spot they were in, due to a lack of financial discipline.

  My Take

  If you have mismanaged your debt in the past to get to this point, then stay away from the debt consolidation loans because you are playing with fire, and statistically you are likely to get burned. I have close relatives who have done this with large amounts of debt and I did it with a small amount years ago, and in all cases the debt returned before paying of the loan.

  Get help from a reputable consumer credit counseling service before you consolidate your debt.