New Visitors Privacy Policy Sponsorship Contact Us Media
Baby Boomers Family Green Home and Auto In Critical Condition Just Starting Out Lifestyle Money
- advertisement -
News & Advice Compare Rates Calculators
Rate Alerts  |  Glossary  |  Help
Mortgage Home
Auto CDs &
Retirement Checking &
Taxes Personal

Considering your consolidation options

Consolidating debt is a lot like sorting dirty laundry: You're not improving the situation, you're just moving things from one pile to another.

"If you don't deal with the behavior that got [you] there in the first place, you're not solving the problem," says consumer adviser Clark Howard, co-author of Clark's Big Book of Bargains.

- advertisement -

But if you're in great shape financially, have no problems paying the bills and have an emergency fund set aside, you're a good candidate for consolidation -- and you have more options.

To consolidate or not to consolidate
Decide what you want to achieve with consolidation. Do you want to lower your interest rates? Do you want to lower your monthly payments? Or just stretch out the terms on your loans? If it's one of the last two, tread carefully.

"If you really want a get-out-of-debt-free card, you've got to understand how you got into the mess and fix the mess," says Wayne Bogosian, co-author of The Complete Idiot's Guide to 401(k) Plans.

"People solving symptoms with debt consolidation are on the verge of making the problem worse," he says.

There are three ways to lower your monthly payments: qualify for a lower rate, put up collateral to reduce the risk and the rate, or stretch out the term of the loan, says Bill Hampel, chief economist with the Credit Union National Association.

If you now qualify for a lower rate with your creditors because of falling rates or better credit, "this is a perfect example of how consolidation can help you," Hampel says.

But consumers need to remember that the debt, even at better terms, is still there. And they still have to be diligent about paying it off before they add to it.

For a smart move, look at what the consolidation will cost you for the total life of the loan, not just the monthly payment, says Todd Mark, spokesman for Consumer Credit Counseling Service of Greater Atlanta. And tread carefully.

"Consolidation is so dangerous, especially for the typical consumer we see," he says. "After consolidation, they get a false sense of relief. So often the worst cases we've seen are people who have consolidated into their mortgages."

Consolidation also can hurt your credit score if it involves a credit card, home loan or line of credit, says John Ulzheimer, business development manager for, a division of Fair Isaac Corp., the company that developed credit scoring.

"Debt consolidation always has an effect on the credit report, so it always has an effect on the credit score," he says. Just how much the score will change, and for how long, depends on your report and how you treat your consolidation loan.

Want to gauge just how much that new card or loan could affect your credit? Go to the Fico Score Estimator at Calculate your score with and without the consolidation option.


-- Posted: Sept. 15, 2004


Print   E-mail

Credit Cards
Compare weekly rates
Type Fixed Variable
Standard 13.23% 14.96%
Platinum 12.70% 15.98%
All 13.02% 15.70%

  Loan calculator (includes amortization schedule)  
  See your FICO score range -- free  
  What will it take to pay off your credit card?  

Credit Card Basics
Don't get trapped by card debt. Learn to use it wisely.
How to find the best card
Check your credit report
Finance charges explained
How to ask for a lower rate
Improve credit with a card
How to repair your credit

Banking glossary  
News archive  
Keep an eye on the leading rates  
Find a high-yielding CD

- advertisement -

- advertisement -

About Bankrate | Privacy Policy/Your California Privacy Rights | Online Media Kit | Partnerships | Investor Relations | Press Room | Contact Us | Sitemap
NYSE: RATE | RSS Feeds |

* Mortgage rate may include points. See rate tables for details. Click here.
* To see the definition of overnight averages click here. ®, Copyright © 2015 Bankrate, Inc., All Rights Reserved, Terms of Use.