Debt consolidation can be a life line for those with problem debts. It can also be the weight that pushes you under. It all depends on how you deal with it.

Debts can creep up on you! One minute you are taking out your first overdraft and it feels like free money! Next someone offers you a store card then a credit card and because you are not handing over cold hard cash, it feels easier to spend!

The minimum payments are small and at first you don't notice the money coming straight out of your bank each month but soon they start to add up. At this point, many people have debts with many different lenders and as the minimum payments together become substantial. you are forced to spend on your credit cards just to pay your bills or buy food each month.

If you watch T.V., you can't avoid adverts for debt consolidation and refinancing. It can be a great idea if you do it right. Unfortunately, most people handle it totally wrong and end up in a much worse situation with debt.

So, what are the good and bad ways to deal with debt consolidation? Well, there are a number of guidelines that you should stick to.

First, never swap an unsecured loan for a secured one. Many companies offer to let you consolidate your debts but secure the new loan on your property. (homeowner loans or any time the advert asks if you own your home). It is a bad idea to make this swap because if you default on an unsecured loan, the worse that they can do to get the money back is to get a County Court judgment, but if you secure the loan on your house, they can take that off you!

Next, often, you will be able to reduce your monthly outgoings with a consolidation loan. This can be highly beneficial to enable you to get back on top of your finances. Bear in mind though, that you are normally paying less because you are paying the loan over a much longer period. You still owe the same amount and will actually end up paying much more in interest over the term of the loan.

The last point is perhaps the most important and is where most people make their mistake. There are two sides to it. One, you are tempted to lend more than you already owe so that you have more to spend. This just puts you further in debt and makes t he situation worse. Two, You get the loan and put off paying off your debts. It feels nice to have all that money sitting in your bank account and it is hard to part with it by just giving it away to your creditors. So, you keep putting it off until you have spent it all. Now your situation is twice as bad!

Debt consolidation can be a great way to give yourself breathing room and get on top of your finances again, but only if you handle it responsibly and do it right!