Try to guess the significance of the following number: 2.5 trillion. If you guessed “consumer debt in the United States,” you were correct. The above stat comes courtesy of the Federal Reserve. If we divide that debt across all American households, you get the often-quoted figure of $8,100 in consumer debt per household. Keep in mind that this is consumer debt, defined as debt that does not include home mortgages. These numbers should not come as a surprise with the fairly easy credit approval process and the average American holding at least two credit cards.
So how does one dig out of debt?
Eliminating debt is straightforward when there is only one creditor owed. The situation becomes increasingly difficult for those who have multiple credit cards. Debt consolidation has been a popular approach to help individuals and families start the process of eliminating debt. Consolidating debt is not new but it certainly is spoken of a lot more as economic conditions deteriorate. The concept is simple. Instead of making individual payments to every source of debt, each with a different interest rate, debt consolidation would bundle everything together into one. The debt consolidator would, in essence, become the creditor and would manage the individual payments to the original debts.
There are many companies that offer debt consolidation. Most companies provide a counselor to evaluate each candidate and their financial situation. The consolidator will usually offer multiple plans, but only after you qualify. Plans will vary depending on how much can be paid monthly and other market forces such as current interest rates.
Consumers should do their homework and evaluate their options as they move forward in the process. Debt consolidation is not the “magic bullet,” but it can certainly help.
