Are you thinking of debt consolidation as a way of turning your high interest loans and credit card payments into more manageable payments. We have all seen the advertisements that show a sample budget filled with a bunch of credit card debt and high interest loans and then another budget with a debt consolidation loan with only one much lower monthly payment. Is this scenario too good to be true? Can debt consolidation really be a wise financial choice for your future? The truth is, it might be a great decision or it may not.

Debt consolidation is when you take a bunch of loans and credit card balances and combine them into a single lower interest/ longer term loan. It does not eliminate any debts; it just breaks it down into a different configuration. The lower interest rate and longer payment terms on a debt consolidation will make your monthly payments smaller-sometimes even hundreds of dollars smaller.

Who should get a debt consolidation loan? If you are a fairly good money manager and you have a steady income, but you have considerable debt from the past and high interest loans to pay off, you may be a perfect candidate for this type of loan. It will allow you to have more income at your disposal on a monthly basis for those unexpected emergencies. But, you need to be really careful that you do not use it as an opportunity to run up your credit card balance again. You can either use any excess funds to pay down the new loan faster, or you can use it to invest or put it in savings.

Who should not get a debt consolidation loan? If you are going to be paying off your credit cards or loans within a short time, you do not want to lengthen the loan by consolidating it. You may end up paying more for the cost of the loan because you will be paying interest longer. Another drawback is that if you were to put down your home as collateral, you could lose your home if you cannot make payments. If you do this type of loan you need to be financially responsible.

This type of loan is available through many banks, credit unions and other lenders. Make sure that you understand all of the loan terms and what your obligations will be before you sign the paperwork.