Many consumers these days are having a tough time keeping their heads above water. The job market is unstable, investments are trending downward and the cost of living is increasing. Some families are having a tough time just making their minimum monthly credit card and loan payments, never mind actually paying down their balances. By the time the mortgage and car payments are paid, food put on the table and other necessities purchased there just isn\'t enough money to go around. Does this sound like you? Then perhaps debt consolidation might be an option.

Debt consolidation is taking out a new loan and using the proceeds to pay off current debts. The new loan is usually based on how much equity you have in your home. Your home is used to secure the loan. It\'s very much like a second mortgage.

Interest rates on a debt consolidation loan are usually higher than a mortgage rate but lower than credit card interest rates. Your particular interest rate will depend on your credit score, the amount of the loan and the duration of the loan. In most cases because the interest rate is lower than credit cards, and you\'ll be paying the loan back over a longer period of time, your total monthly payment could be considerably less than the total of your credit card payments.

The advantages of this type of debt management program include the lower monthly payment, less paperwork because you\'re only making one payment instead of one for each of your cards and other loans, and that you don\'t affect your credit score negatively. Your report will reflect that the loans were paid off in full.

The disadvantages include the fact that the loan is secured on your home, if you miss payments and default the lender can foreclose on the home, even if you\'ve kept up payments on your first mortgage on a timely basis. The other main disadvantage is that some people are tempted to pay off the credit card balances but keep the accounts open and active. Unfortunately the temptation to continue using the cards builds the balance back up. Before you know it you\'re in a worse position than before.

Debt consolidation is an option for those who have equity in their homes and the will power to close the credit card accounts after they\'ve been paid off. It may give you the time you need to get back on your feet and a fresh start for the future.