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This option requires being offered a credit line sufficient to cover the debt that the borrower wants to consolidate. A borrower who is also a homeowner with equity may be in a good position to leverage that equity into a debt consolidation loan.Also, pay close attention to what the APR on your balance will be after the initial offer period has expired; with bad credit, the interest rates you are offered are likely to be high. Lenders such as Prosper and Lending Club have higher loan approval rates than banks and are known to have lower minimum credit score requirements. One advantage is that the new monthly payment obligation can be much lower than it was pre-consolidation.Your credit utilization ratio may go up (resulting in a dip in your credit score), but new debt could have even more devastating financial consequences.Leave the accounts open only if you are confident in your ability to keep the balances at zero.(See An Internet search for “debt consolidation” yields many companies that advertise great success in what they call debt consolidation.Most actually offer debt negotiation and settlement services, not loans.

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Every consumer can get a free credit report once every twelve months from each of the three major credit reporting agencies (Equifax, Experian and Trans Union) by visiting the Annual Credit website.

One disadvantage is that many home equity loans have repayment periods of 10, 15, 20 or 30 years and can drastically increase the amount of time it takes to repay the debts.

And, of course, if you don't make the payments, you are risking your home. Borrowers who want to knock down their debt in three to five years and learn new financial management skills in the process are great candidates for a debt management plan (DMP).

Debt consolidation is most effective when part of an overall financial education program that leaves the borrower better equipped to avoid debt in the future.

The best thing a debtor can do is incorporate the consolidation plan into a new and better financial management strategy. Free and low cost help is available in all 50 states. Thorough understanding of the consolidation plan is critical.

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