Debt consolidation is a sensible solution for consumers overwhelmed by credit card debt. It can be done with or without a loan. Consolidation cuts costs by lowering the interest rate on debts and reducing monthly payments.

What is Debt Consolidation?

Debt consolidation is a financial strategy, merging multiple bills into a single debt that is paid off by a loan or through a management program. Debt consolidation is especially effective on high-interest debt such as credit cards. It should reduce your monthly payment by lowering the interest rate on your bills, making it easier to pay off the debt.

This debt-relief option untangles the mess consumers face every month trying to keep up with multiple bills from multiple card companies and multiple deadlines. Instead, there is one payment to one source, once a month.

And it saves you money at the same time!

There are two major forms of debt consolidation – taking out a loan or signing up for a debt management program that doesn’t include a loan. It’s up to consumers to decide which one best suit their situation. Debt consolidation is also referred to as “bill consolidation” or “credit consolidation.” By any name, consolidating debt effectively should get you out of debt faster and eventually improve your credit score.

How Does Debt Consolidation Work?

Debt consolidation works when it lowers the interest rate and reduces the monthly payment to an affordable rate on unsecured debt such as credit cards. The first step toward making debt consolidation work is calculating the total amount you pay for credit cards every month and the average interest paid on those cards. That provides a baseline number for comparison purposes.

Next, look at your monthly budget and add up spending on the basic necessities like food, housing, utilities and transportation. How much money is left? That is the critical question.

For many people, there is enough left to handle their debt if they organize their budget better and get motivated to pay down debt. However, those characteristics, effective budgeting and motivation, aren’t generally evident when people fall behind on their bills.

And that is where a debt consolidation loan or debt management program can step in. Each requires one monthly payment (organization) and allows you to track your progress as you eliminate the debt (motivation).

Research online debt consolidation companies and calculate whether a loan or debt management program will help more in paying off the debt.