the Truth about debt consolidations

If you have more bills than Dunkin Donuts has holes, it's likely you're only making the minimum payment on some (or all) of them. You may even be behind on several. And probably you're struggling month to month without much progress. So what about debt consolidation?

There are ways to consolidate multiple debts into one manageable monthly payment. But prepare to make some compromises and tradeoffs. The following will help you make an informed decision.

CONSOLIDATION LOANS. Generally, these are a myth unless you're a homeowner with some equity. Lenders will not want to know you once they realize you're trying to borrow your way out of debt.

If you are a homeowner, think twice before you put your house at risk to pay off a pile of consumer debt. Sure, you'll get a lower interest rate. Sure, the interest will be tax deductible. But low interest and deductibility won't keep the rain off your head. And isn't your goal to pay off your mortgage -- not jack it up with a lot of "junk debt"? Save your home equity to use for more important things: Trading up to a bigger home, educating children, retirement, etc.

If you have other collateral, such as a vehicle, stocks, coin collection, etc., these may enable you to get a consolidation loan. Maybe you'll get a couple of points shaved off the interest, or maybe not. You'll have a single, lower monthly payment, but a longer pay-out until you're rid of the debt. Meanwhile, your property is on the line.

One thing more: If you get a comfortable monthly payment and all your credit cards and accounts are brought down to a zero balance via the consolidation loan, then the temptation will be to use that available credit (No? How did you get in this predicament to begin with?). This is almost a cliche' among lenders: They see the same people again and again, trying to consolidate their previous consolidation loans....