Debt Consolidation Loans Require Clear Strategy

In the first half of the '00s, consumers didn't have to look very hard to find debt consolidation loans. Government regulators have chided banks for failing to offer consumers help with debt management during the height of the lending crisis. Today, a handful of options remain for affordable debt consolidation. Knowing your ultimate goals for debt management can help you choose the right source of assistance.

Debt Consolidation Loans to Save on Finance Charges

With many credit card lenders hiking interest rates over the last year, even for their best customers, it's easy to see the allure of finding a debt consolidation loan. Taking out a home equity loan to pay off high-interest unsecured consumer debt is the easiest way for families with good credit (and home equity) to simplify their monthly bills. However, some personal financial advisers warn consumers to be careful with this strategy. Closing out zero-balance credit cards may hurt your credit score, while leaving them open may prove too tempting for some families.

Balance Transfers in a Cash Crunch

Balance transfer credit card options still exist for borrowers with stable incomes but often carry a fee that could negate your long-term savings. In those cases, the threat of making a balance transfer could be more powerful than actually moving your business to a new lender. Industry experts recommend asking for better terms or requesting a switch to an account with lower interest but higher annual fees. This counterintuitive move, offered by a financial blogger on the Dallas Morning News, may save you enough money to help with debt in the short term while allowing you to transfer or negotiate again in the future.

Debt Settlement as a Last Resort

Families on the brink of the financial disaster have increasingly turned to debt settlement programs as a final drastic step before considering bankruptcy. Many lenders now employ dedicated hardship specialists who can design custom repayment plans. Plans offer deeply discounted finance charges and reduced minimum payments in exchange for losing the privilege of making new purchases.

Since any debt consolidation loan or solution can potentially affect your credit report or your overall debt management costs, it's a good idea to seek personal guidance from a financial advisor or from a nonprofit credit counseling agency.