The Best Credit Card & Debt Consolidation

Debt consolidation is only effective in 22 percent of all cases; the remaining 78 percent of the time, the borrower ends up having more debt, according to Dave Ramsey, a financial counselor. The problem, according to Ramsey, is that debt consolidation only treats the symptom, not the problem, of overspending. However, if you are ready to change your spending (and saving) habits, consolidating your debt can be a good way to reduce your monthly payments.

Home Equity

If you own your home, and have enough equity in it to cover your debts, you could consolidate your debts by taking a home equity loan, home equity line of credit or a cash-out equity refinancing and use the money you get to pay off your debts. This method of debt consolidation is risky in that you're gambling your home if you are unable to make your payments, but you are rewarded with an interest rate that is likely much lower than you are paying now. Further, your payments are spread over time so you enjoy lower monthly payments.

Credit Cards

If the amount of debt you wish to consolidate is relatively low or you are able to make considerable payments each month, you could consolidate all your debt on to a low-APR credit card. Even if you only get that low (or 0 percent) APR for a short time, if you can manage to pay your debts off in that time frame, you could save a considerable amount in interest. Of course, to be able to use this debt consolidation option, you have to be able to secure a credit card with a high enough spending limit to allow you to consolidate.

Debt Management

If you are in a situation where new, adequate credit is not a possibility, you may opt to use the services of a debt management company or debt consolidation agency. This type of company can negotiate with your creditors to reduce your interest rate, develop a settlement amount, or have certain fees and penalties waived. On the downside, you do have to pay for these services. Moreover, for as many companies like this that are legitimate, there are just as many that are not, so be sure to do your research; the Better Business Bureau and your local Attorney General's office are places to start.

Bankruptcy

Alternatively, you may want to consider filing for bankruptcy. Under a Chapter 13 bankruptcy, you will still be able to keep your home, your vehicle and most of your assets while discharging most, if not all, of your nonexempt debts. The way it works is you pay a court-appointed trustee all your disposable income; you keep enough to cover court-approved living expenses. The money is then distributed to your creditors. Secured debt, like your home loan, is paid first; this is why you are able to keep your home. Any money left over goes toward your other debts. The payment plan is set up over three to five years. At the end of that time, any amount you still owe will be discharged so long as the debt is not exempt for discharge. Your credit score will take a hit, but filing bankruptcy can help you get back on your feet.