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Is debt consolidation smart or is it dangerous solution for debt management? That depends. In today's fragile economy, more and more people are finding themselves slipping into deep debt. For many, debt happens in a seemingly sudden way, even if it is often the result of years or months of poor spending habits. Consolidation is an option for people seeking to find freedom from the burden of debt. However, there are many pros and cons that should be carefully considered.

Benefits of Debt Consolidation
Debt consolidating involves combining all of a person's monthly bills into a single payment and this often frees up cash for living expenses. Many people like the convenience of only having to worry about one bill per month, because it reduces the possibility of forgetting to make a payment. Also, debt consolidation can help a person get a lower interest rate or a fixed interest rate.

What Are The Risks?
Although consolidations have helped many people get out of debt, it's important to be aware of the risks, too. Usually, a debt consolidation plan will require a person to take out a home equity loan, or second mortgage. If unexpected situations come up that cause a person's financial situation to come under even greater strain, stress and uncertainty reaches a peak, since a house is now at risk of being lost if the finances cannot be managed properly.

It can also have a negative effect on a person's credit score, since one of the determining factors is how long a person's credit accounts have been open. When debt consolidation goes into effect, credit card accounts are usually closed, and this could cause a credit score to decline.

Another risk or danger of consolidating is that not everyone takes this as an opportunity to get debt free. Some people now have more credit with which to spend. Anyone considering consolidating should cancel cards that are paid off to reduce the risk of sinking into a deeper debt abyss!

Debt Consolidation Should Be Combined With Personal Motivation
One very important thing to note is that it's just a temporary solution. Even though it can be a very effective way to help people cope with their past spending mistakes, there's nothing to stop a person from slipping back into their old habits once their debt finally reaches a manageable level. In order to see the greatest amount of success, people who begin a debt consolidation program should set about attempting to make a permanent, positive change in their spending habits and start a rainy day / emergency fund as well as a savings account.

Although it is usually difficult to adopt a new mindset for financial management, making an effort to be disciplined could help you attain financial freedom in a shorter time than you might imagine.

Want more financial advice? The Money Jar Budget Blog offers tips and strategies for gaining control of your finances. Helpful posts include: Loan Modifications and their role in debt consolidation and great reasons to consider prepaid credit cards.

By Dana Prince
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