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nterest rates haven’t been this low for decades, tempting some consumers to take on additional debt to ease existing credit woes. The goal is to consolidate various higher-interest balances into one, easier-to-handle and less-costly package.

But be careful of what looks to be a quick fix.

“You’re getting symptomatic relief, not a credit cure,” says Chris Viale, general manager of Cambridge Credit Corp., a nonprofit credit counseling agency based in Agawam, Mass.

This fighting-fire-with-fire approach can take several forms. There are debt-consolidation loans, balance transfers to a zero-percent credit card and home equity loans or lines of credit.

But, says Viale, 70 percent of Americans who take out a home equity loan or other type of loan to pay off credit cards end up with the same (if not higher) debt load within two years.

Viale’s statistics underscore a major problem with debt consolidation: It feeds upon the tendencies that got you in trouble in the first place. By taking on yet another creditor, you’re adding the proverbial fuel to the fire. In this case, it’s your money that’s burning.

Plus, if you’ve taken on so much debt that you’re looking for more as a solution, chances are you won’t qualify for the very low interest rates you see advertised. Those generally go to people with stellar credit ratings.

However, if you’re at the end of your credit rope or swear that this time you’ll be more disciplined, debt consolidation may be something to consider despite its risks. Here are some popular forms of debt consolidation, how they work and a look at their pros and cons.

Home equity loan or line of credit

Home equity lines or loans often are touted as a quick and easy way to get out of debt. By leveraging your residence’s value, the pitch goes, you can get money to pay off other bills and a tax break, too.

But borrowing against your house can backfire. The biggest risk: You could lose your home if you default on the loan.

“Some hardship occurs and now they have double the debt and if it’s secured by their home, they could lose it,” says Diane Giarratano, director of education at Garden State Consumer Credit Counseling in Freehold, N.J.

And while equity loan interest generally is tax deductible, it could be limited in some situations. Even when it does provide a tax break, Cambridge’s Viale says “that doesn’t mean it makes fiscal sense.”

Giarratano agrees. “Banks will tell you how much you can borrow,” she says. “That doesn’t mean you should borrow the total amount, but that’s what people do.”

Still, a home equity line of credit or loan to pay off creditors can work for some debt-burdened homeowners. Just be sure to do your homework to guarantee that the home equity dollars and cents make sense. This Bankrate calculator can help your determine whether borrowing against your home’s equity is a wise move.

Zero-percent credit card

What about people who don’t own a house? In these cases, many turn to zero-percent credit cards to reduce debt. Again, prudence and discipline are required.

Companies offer these rates as teasers — enticements for you to switch credit card vendors. Much of the time, card companies target consumers with better credit, so that may leave someone struggling with debt without this option.

Even if you do qualify for a zero-percent or similar single-digit rate, it won’t last forever. Make sure you know when it will end and what the rate is expected to jump to when it does.

The low rate also lasts only if you pay on time. One late payment and the credit card company will jack up the rate. Also look for hidden fees and charges that can increase the actual cost of credit.

“It’s a short-term fix,” says Viale. “The only way it works is if you are really meticulous about paying it and stay on top of it and then move onto another credit card before the low interest rate expires.”

Opening new credit card accounts every six months, however, could negatively affect your credit rating, he cautions.

And to successfully lower your debt load, you’ll need to pay far more than the smallest amount the card company will accept, especially after that zero rate disappears. “Paying the minimum for a $20,000 debt won’t cut it,” notes Viale.

Bankrate’s minimum payment calculator illustrates Viale’s assessment. Say, for example, you transferred $20,000 of other debt to a zero-percent card and paid $1,000 on it by the time the rate jumped to 14 percent. If you make only the minimum monthly payments, it will take you 1,134 months — or 94.5 years — to erase your remaining $19,000 balance. If you live that long, you’ll pay $64,805 in interest. And that’s presuming you don’t charge another thing during that time.

Debt consolidation loan

Did the credit card computations scare you into looking for another option? There’s always a debt-consolidation loan. Offers for these financial products are an e-mail box staple. Chances are you get a dozen or more everyday suggesting this as the solution to your growing debt problem.

A major appeal of consolidation loans is convenience. Instead of paying 20 different creditors who are charging different rates at different times of the month, you take out one big loan and pay off all those accounts. Then you make a single payment on that loan once a month.

But ease doesn’t automatically translate to savings.

Before you sign on the dotted line, be sure that the costs of the new, bundled loan will truly be less than what you’re already paying various creditors. For many consolidation-loan candidates, their current credit woes mean they won’t get the lowest-available interest rate. Plus, when there is nothing to secure the loan (such as your home), expect the lender to bump up the rate.

Calculate interest and fees on all your existing accounts to determine the total of the payments you now make. Then compare those amounts with the consolidation loan numbers to make sure it truly is a better choice.

And, as with any product, shop around. The bank down the street may offer an attractive loan rate, but a check of your local credit union could turn up better terms, says Deborah McNaughton, author of “The Get Out of Debt Kit.”

“Credit unions also tend to be more lenient than the banks,” adds McNaughton.

Managing, not adding, debt

Viale is a much bigger fan of debt management, which isn’t a surprise since he heads up a debt management firm. But McNaughton and other experts also point to credit counseling instead of shifting debt as the way to go.

They favor debt management because it costs less and is quicker than a debt-consolidation loan. Viale says someone owing $20,000 would end up paying $6,000 to $8,000 in interest and fees and be debt free in four to six years by using a credit counselor. If that person took out a 15-year home equity loan at 10 percent (because his credit wasn’t good enough to get him a lower rate), Bankrate’s loan calculator shows he’d end up paying $18,686 in interest on top of the twenty grand he borrowed.

But if you just can’t get a handle on your bills by yourself, you should explore credit counseling. Getting professional help in managing your debt can help you change your credit behavior. People that have taken on too much debt tend to go into denial; they’d rather not know how much debt they owe. A professional debt manager will make you face up to your obligations.

Credit counseling agencies also force you to stop racking up debt. In exchange for consolidating your debt and working with your creditors to reduce your payments, credit counselors require you to give up your credit cards.

Credit counseling, however, is not without its costs.

One downside is that your reduced payment plan will probably show up as a mark against you on your credit report. Even though your creditor agreed to the reduced payment, you technically did not pay your account as called for in your original credit agreement.

An even more costly potential pitfall is the disreputable debt counselor. As this Bankrate story points out, some credit counseling and debt-consolidation companies are only interested in making a quick buck on debt-ridden consumers. Some firms offer shoddy service at sky-high fees. Others are out-and-out scams.

To find a reputable firm, verify certifications or third-party registrations. Check with the Association of Independent Consumer Credit Counseling Agencies or the National Foundation of Credit Counseling to see if the service you’re considering is a member of either group. Also ask the service for references and then confirm them.

Make sure that the debt management or credit counseling firm answers all your questions and that you have a firm understanding of how the process will work and what it will cost. If the company won’t give you straight answers or you don’t understand what’s going on, don’t sign up with that company.

Jenny C. McCune is a contributing editor based in Montana.

The phrase “debt consolidation” has always had a magical ring to me.

As if somehow, someone would have the power to mush my debt into one neat little package, which by some incredible financial alchemy would also then shrink the debt itself — and I’d only owe a hundred bucks or so.

I know I’m not the only idiot who’s had this fantasy, because an entire industry has sprung up to support it: The Debt Consolidation Industry and Covert Sting Operation. Every day, I get at least one piece of regular mail offering me low-interest balance-transfer deals for credit-card debt, or arm-twisting e-mail from unknown credit organizations that scream things like:

• “DEBT RELIEF IS JUST A CLICK AWAY!”
• “CUT YOUR MINIMUM MONTHLY PAYMENTS BY 50% OR MORE!”
• “SLASH YOUR INTEREST RATES DOWN TO ZERO!”

These promises are incredibly alluring to anyone who is caught in the quicksand of having too much consumer debt, and who will believe anything, do anything — click her ruby slippers (bought on sale for just $400!) three times — to make it go away. But before you start skipping down some financial yellow brick road to see the Wizard of Debt Consolidation, remember this: Watch out for those flying monkeys.

Three bad debt-consolidation moves:

1) The Hard-Money Loan
“The biggest myth about debt-consolidation loans is that they’re easy to get,” says Scott Kays, president of Kays Financial Advisory Corp. and author of “Achieving Your Financial Potential.” If you really need a loan, it’s probably because you’ve already missed a few payments and your credit history has more dings in it than a ’74 Ford Pinto.

And that’s the problem. Kays says that if you are a credit risk, the consolidator may entice you with promises of an easy-does-it loan, and end up charging you higher interest rates than you’re paying now — as high as 21% or 22%. “Your monthly payment may be lower” with one of these loans, “but you’ll end up paying more,” says Kays.

2) Debt Consolidators Who Promise to Take Care of Everything
This is the fairy godmother fantasy. This Nice Big Debt Consolidation company comes along and swears they’ll make your life soooo much easier. They’ll negotiate lower interest rates, reduce your monthly payments — and all you have to do is make “one EZ payment.”

In reality, many debt consolidators build in a fee as part of the monthly payment you make to them. It’s usually about 10% of the payment (i.e. about $40 on a $400 monthly payment). They pass along your payments to the creditor — some debit directly from your checking account — and get back a 10% to 15% slice that the relieved creditor is only too happy to rebate to the consolidator.

Is it worth paying someone else to do what you can do on your own, i.e. negotiate lower interest rates and stretch out your repayment schedule and pay off the highest-interest debts first?

To desperate ears, this might sound like an ideal solution, especially when you talk to these people and they scare the bejeezus out of you. I interviewed two, Cambridge Credit and Counseling Services and Integrated Credit Solutions. Each offered similar services, and I don’t recommend either of them. The senior credit counselor I spoke to at Integrated told me, in grave tones, that it would take me 379 months — or 32 years — to pay off my debt. With their services, however, they would “save me 27 years,” and I could pay off my debt in just 53 months, or about 4 1/2 years.

Thats funny, because when I plugged my debt into the MSN Money Debt Consolidator — a less biased source, since they ain’t getting no fee from me — they said I could pay off my debt in 41 months, providing I make slightly higher minimum payments to each card: a total of just $60 extra per card.

Here’s another risk with consolidators you should know about: they have been known, in some cases, to make late payments or even miss payments, thus worsening your plight (and your credit record).

After I got off the phone with Integrated, I had to ask myself: Is it worth paying someone else to do what you can do on your own? That is, negotiate lower interest rates and stretch out your repayment schedule and pay off the highest-interest debts first? I don’t think so.

3) The Balance Transfer Trap
Low-interest balance-transfer cards are a dime a dozen these days, but remember that those rates only last a few months — and then you have to switch cards again. The danger is that at some point all this activity begins to show up on your credit report, and you start to look like a bad risk. Then if you get turned down, “you could be left holding the high-interest card you were hoping to dump,” says Kays.

If you think you can swing from the balance-transfer vines for a few months, just make sure you formally close all your accounts yourself, and then notify the credit-card company to mark the account “closed at customer’s request.” “Otherwise, on your credit report, it will look like the creditor closed your account,” says David Mooney, PR director of Equifax, one of the biggest credit reporting agencies. Thus making you look like an even worse risk, even when you’re doing your best not to be.

Your best debt-consolidation moves
If you own a home and have some equity in it, you have a couple of options that are relatively low in cost. These are pretty straightforward:

Take out a home equity loan. A home equity loan has the advantage of carrying a fairly low interest rate, currently in the high single digits, and what interest you do pay is tax-deductible, Kays points out. Most fixed-rate loans carry a 15-year term and require that borrowers pay an origination fee of $75 to several hundred dollars, plus the cost of an appraisal and title insurance.

Do a “cash-out” refinancing. Another option for those with home equity is refinancing your property for greater than the amount you owe and using the extra cash to pay off debt. You get very low interest rates this way, but you’re stretching payments out over 15 or 30 years. The total interest cost over three decades can wind up being pretty huge, so think of this as a one-time-only (if ever) option.

Refinance your car. “Most people don’t think of it, but it is a secured loan and you can borrow against it,” Kays says. The danger there is that you may run out of car before you run out of debt. It’s tough to buy a new car when you owe more than it’s worth.

Get a personal loan. If you have reasonably undamaged credit, you may qualify for an unsecured loan. Credit unions (see link to the left) typically offer lower rates than banks, but even there you can expect a rate of 11% or more. Still, that may be a whole lot less than the 20%-plus you’re now paying to the credit-card company.

Negotiate better terms. You can do this for yourself easily. Just call your credit-card company and ask them to do it (many customer service people are authorized to reduce rates right there on the phone).

Another alternative. Or you can get help from an organization like National Foundation for Credit Counseling (see link to left). NFCC has branches throughout the country; they are a non-profit, community organization that provides free and confidential debt management advice to anyone who needs it. You can even consult with them over the phone, like I did (see below).

Like other debt consolidators, NFCC gets paid by creditors, so it’s in their best interest to work out a repayment plan rather than advise you to declare bankruptcy. Not that you want to be advised to declare bankruptcy, but in certain cases it may be your best option.

NFCC makes no outlandish promises beyond the prospect of a saner financial life, and the possibility of qualifying for their low-rate mortgage program. They also offer low-cost financial planning — a resource I’m definitely going to look into for a future column. Once I have some finances again, I will need someone to tell me what to do with them!

So whatever happened to
Since writing about my struggles with debt, Ive become religious about paying as much money as I could every month. (Thing was: I still carried my credit cards in my wallet. So my new get-out-of-debt tip would be: Take the cards out of the wallet. Otherwise, you will use them.)

Then those big payments started to have an impact. But I was on a mission. I wanted my debt gone. I turned to debt calculators, talked with friends, and ultimately came up with a two-pronged plan of merciless debt destruction. Operation Enduring Freedom from Debt. First, I took on some extra freelance work that, eventually, would pay me a little bit more than my debt in four big chunks. While I was waiting and working, I decided to consolidate my debt and turned to NFCC as my resource.

Here’s the best part of NFCC: 1) They give you a one-hour consultation, by phone or in person, to help you decide if you need a Debt Management Plan. 2) In order to do the consultation, they make you fill out a form that details all your expenses.

Writing down my daily expenses is Personal Finance 101, and I’ve always found it mildly useful. NFCC advisor Nina Reiss, on the other hand, walked me through an entire year of expenditures. Now THAT was eye-opening. She asked me what I paid per month for things I’d forgotten even were expenses: subscriptions, holiday gifts, underwear, new socks, groceries, birthday gifts, movies (even rentals), my yoga classes, banking fees — you’d be amazed what you pay just to live a semi-civilized life.

Ultimately, Reiss felt that I was living about $100 a month beyond my means, but that I was paying as much as I could toward the debt on my own. We did the numbers and figured that even with their interest-rate reductions, I could still pay off my debt without their help — as long as I cut back my expenses so that I was living within my means. So in the end, dear reader, getting out debt boils down to one thing and one thing only (which you and I already knew): elbow grease, peanut butter lunches and living like a more reasonable human being.

You’ve probably heard the advertisements on the radio or seen them on the television or in the newspaper:

Be Debt Free in just Days.
Easy Debt Consolidation Loans.
Erase your Debt Now!

Whether known as “Online Debt Consolidation Loans Companies” or “Online Debt Consolidation Financing Companies” or “Online Debt Consolidation Mortgage Companies”, they are all part of a relatively new type of online debt consolidation network. And they are Hot.

Recent popularity.

Millions of Americans have a wallet full of credit cards–plus expensive personal loans, auto loans, second mortgages and more. They’re tired of paying 15%, 21%, 29% and more on credit cards, auto loans, personal loans and other types of credit. With a debt consolidation loan people can wipe the slate clean and start over. A debt consolidation loan can lower your interest rate, combine all your accounts into just one convenient monthly payment and give you some extra breathing room in your budget. In many cases you can net an extra $300, $400, $500 or more per month just by consolidating your debt at a lower interest rate. You’ll save money now – and at tax time too (be sure to consult your tax advisor for specific laws in your area.)

How they work.

Most of the online debt consolidation loans companies work something like this:

• You fill out a brief 1 or 2 page online form. This can normally be done in just a few minutes.
• The online debt consolidation loan company sends this form to its network of banks.
• You receive back a return email. This contains the best offers from the network of banks.
• You select the loan offer you like best (normally the one with the lowest interest rate).

It is really that easy. If you like any of the offers you just reply to the email, indicating which offer you want to accept or to request more information. And all of this costs you nothing! There should never be an application fee.

Not all debt consolidation loans are the same.

There are 3 bits of information about your loan that are very important:

Amount Financed: The amount of credit provided to you. This will normally be the amount of the loan you will receive from the lender.

Finance Charge: The dollar amount the loan will cost you. This is the interest you will pay on the loan.

Total Payments: The total amount you will have paid after you have made all payments as scheduled.

These figures can vary wildly between lenders. You should treat these debt consolidation offers as you would a new car … shop around for the best deal! Someone looking to secure a great debt consolidation loan should fill out applications for several different Online Home Mortgage Refinance Companies, and then accept the one with the lowest interest rate. Why pay more than you have to?

Debt consolidation loans at your fingertips.

It used to be that to get quotes to consolidate your debt you had to go to several banks and sit in a lobby with many others. Fortunately this is no longer the case. There are now entire online companies that exist solely to administer these loans. Now the entire process can be completed quickly and easily from the privacy of your computer.

Fraudulent websites & Potential Pitfalls.

Unfortunately, as with any innovative idea come the scammers. Hundreds of “debt consolidation loans” websites have popped up, claiming to offer the best deals. Many charge excessive interest rates for even the smallest of loans. Other problems are:

1. Charging application fees (NEVER pay a fee to apply)
2. Excessive loan fees
3. Hidden charges
4. Zero help or customer service

Many of these SCAM sites won’t even respond to customer requests. Eventually they get shut down due to too many complaints, or the State Attorney General forces them out of business. But the borrower is already locked into a bad deal, and the SCAMMERS just open another site under a different name in a different state. It’s definitely “buyer beware”.

Yes, your house can get you out of crippling debt!

If you can stay away from the SCAM websites, getting a debt consolidation loan online through one of these companies can be a great way to get the best possible deal with the least amount of work.

Before applying online for a debt consolidation loan, you should be sure that the website satisfies the following minimum requirements:

• Well organized, easy to navigate sites.
• Helpful resources available for newcomers.
• Short application form that can be completed in minutes.
• No application fees.
• No obligation.
• No hidden charges.
•Bad credit not a problem.

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