Debt consolidation involves taking one loan out to pay off several other debts. The attraction is the chance to consolidate a variety of higher-interest balances into one, less-costly and an easier- to-handle loan. This approach can take various forms including balance transfers to low-interest credit cards, home equity loans, and special debt-consolidation loans.

Low-Interest Credit Cards

Moving your debt to a low-interest credit card will lower the amount you are paying in interest, but only for the short term. If you do qualify for a low-interest credit card, you will need to find out exactly how long the interest rate lasts. Most companies fix the rate for six months and then switch to a higher rate. This may be more than you were paying when your debts were separate, so you will need to exercise caution.

Home Equity Loan

A home equity loan is the opportunity to borrow against the value of your house. This allows you to pay off your outstanding debts, leaving you with just one debt to pay. Home equity loans are also generally tax deductible. However, before committing yourself you will need to determine if the amount you need to borrow can be comfortably taken from your home's equity. You need to be careful you do not end up in negative equity, which is when you owe more than your house is worth. You also risk foreclosure if you default on your loan payments. Home equity lenders have also been imposing stricter standards for loaning money.

Debt Consolidation Loan

A debt consolidation loan is fast becoming the most common solution to a person’s debt problem. The main appeal of this type of loan is convenience. Rather than paying ten different creditors who all have different interest rates, you take out one large loan and pay off all your debt. This will leave you with one easy-to-manage payment. However, you should always check the interest rate before agreeing to a debt consolidation loan as some companies charge sky-high rates that work out more than the person’s original debt payments.

Credit Counseling

Many financial experts believe that shifting debt is not the answer, and that a person should try credit counseling instead. Getting professional help can assist with making changes to your credit behavior. A credit counselor will ask you to surrender your credit cards in exchange for working with your creditors to reduce your debt payments. Ensure you find a reputable firm who has the relevant certifications before committing yourself.