Bad Credit Debt Consolidation Loans

It's that time of year when everyone seems focused on losing those extra holiday pounds. But dieting isn't the only way to live a clean, healthy lifestyle. Proactively managing your credit cards will reduce your debt's waistline, enabling you to fatten not your debt, but your wallet down the road.

If you're strapped with several monthly payments and balances that never change, it's time to consider loan consolidation.

Understanding debt consolidation

Consolidation is the process of replacing several small loans with one big loan. Most people consolidate to lower the monthly payment requirements. Consolidating may also result in a lower interest rate, which creates long-term cost savings. Another advantage is the convenience of managing one monthly payment instead of several.

Understanding credit problems

Debt consolidation loans are actually geared toward borrowers with problem credit. (If you've made every payment on time, you probably don't need to consolidate.) The simplest, most common options for consolidation are available to homeowners in the form of a home equity loan or mortgage refinance. Lenders view home equity financing as relatively low risk, because the loan is secured by the home's value. Just remember that if you can't make the payments, the lender can foreclose on your home.

Non-homeowners will have to obtain an unsecured personal consolidation loan. Shop around for the lowest interest rate and make sure you understand the fees involved.

Know your commitment

One concern is that you may continue to spend after consolidation. With the extra cash flow and availability of credit cards, some borrowers go spending-crazy, ending up worse off than before consolidation. You must be committed to destroying the plastic and sticking to a budget.

Usher in the New Year with a resolution to start building long-term wealth. Doesn't that sound better than giving up chocolate?