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Debt Management Guide 2008
Danger ahead
Debt problems don't just suddenly appear. If you're alert for signs of trouble, you can probably avoid them.
Danger ahead
The dangers of debt consolidation
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"I call them hand grenades," says Walters. "If it's sitting on your desk with the pin in, it's harmless. If we pull the pin out, we have a problem. As long as you make your payment every single month not only on that card but all your other debt, it's OK. If you're late on anything, even if it's not that card, the interest rate blows up and destroys your financial portfolio."

The lesson? Go over the fine print with a fine-toothed comb and make sure you can live with the terms. "No one gives you anything for free. If all you focus on is the APR, you're pretty much writing 'rip me off' on your forehead," Watkins warns.

Debt consolidation loans/counseling
The good news: Paying one debt at one rate usually trumps eight credit cards at varying rates in the debt game. Watkins recommends his students especially look into this route for their education loans.

He's also a big fan of contacting the individual companies that hold your outstanding debts to arrange participation in the corporations' special payment programs. Such moxie offers the cleanest escape route.

"But some people are intimidated by calling the company and saying, 'Hey, I can't pay this -- what can we work out?' They'd rather have someone else do it for them," he says.

Naturally, there are third-party companies ready to help with this shyness, and the option could get you out of debt quicker than if you continue to plug away at the monthly minimums.

"Remember, if you don't use anybody, you owe all that you owe. All the interest, all the late charges, etc.," Latko adds. "When you go into a formal debt consolidation plan, a lot of times they negotiate to get you out of debt in three to five years, where it might take you 10 to 15 otherwise."

Another often overlooked source of funds: your company's 401(k) plan. According to Latko, you can borrow against your money there, which means the interest you pay over the five-year time limit is actually being paid to your own account -- to yourself.

You can always explore debt consolidation loans from a bank or credit union. Just remember, unsecured debt carries higher interest rates than home equity loans, and your ability to snag the money even at that price still relies on that magical credit rating number.

-- Updated: June 16, 2008
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