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Consolidate Debt can save you from Foreclosure or Bankruptcy.

Many Americans choose to consolidate debt in order to reduce interest and lower monthly payments. While debt consolidation might be a practical option, there are many things to consider before rolling outstanding debts into one large payment.

Consolidate debt loans can be used to pay-off credit cards, personal loans, student loans, medical bills and unsecured debt. Three types of loans can be used to consolidate debt: Cash-out refinancing, home equity loan or home equity line of credit.

Cash-out refinancing pays off the first mortgage and creates a new mortgage loan. This type of loan is best suited for homeowners who have considerable equity. Let's say you own a home valued at $150,000 and your mortgage note balance is $75,000. You could refinance for $115,000 and use the remaining $40,000 to pay off debt. While your monthly payment will be higher, the overall interest rate will be lower. As long as you use the money to pay existing debts, this strategy is a smart way to consolidate debt.

Home equity loans consolidate debt by using the homeowner's property to secure a second loan. This can be a very risky move for homeowners; particularly those who are already struggling financially. If the homeowner is unable to make payments on the consolidation loan they could potentially lose their home to foreclosure.

Home equity line of credit (HELOC) provide homeowners with a specific amount of money which can be accessed at any time. Adjustable interest rates are charged only when money is withdrawn from the account. HELOC accounts are generally charged a higher interest rate than refinancing or home equity loans.

Individuals who do not own a home can consolidate debt by utilizing debt settlement, credit counseling or bankruptcy. There are many debt negotiation companies offering to help people regain control of their finances. However, considerable caution should be used when selecting a debt management organization. Unfortunately, there are many unscrupulous people who prey on desperate people.

The primary goal of debt settlement is to negotiate with creditors to reduce interest rates and outstanding balances. Reputable debt management companies are usually well-connected within the credit industry and employ professionals to negotiate deals on behalf of their clients. In many instances, they can slash balances in half.

On the other hand, there is no reason you cannot approach your creditors to negotiate a deal. If you can offer a minimum of 50-percent of your loan in a lump sum cash payment, they just might accept your offer.

Individuals overwhelmed with debt and who have no understanding of how they created their financial crisis, would be wise to engage in credit counseling. A credit counselor reviews the debtor's finances, provides credit education and helps create a realistic repayment plan.

Bankruptcy should be used only as a last resort. Not only does bankruptcy cause serious damage to your credit history, it remains on your report for up to 10 years. During this time, you will have to pay much higher interest rates; if you are able to obtain financing at all. Over the course of time, you could end up paying thousands for high-interest loans.

Before making a final decision on how to consolidate debt, take time to conduct research and determine which option is best for you. Feel free to browse Simon Volkov's article library; packed with real estate, investing and money management artic