A debt consolidation loan can both save you money and make your debts more manageable. More extreme solutions, such as debt management and debt settlement programs, can help those experiencing the most severe shortfalls. Perhaps the best news is that recent declines in interest rates make this an especially good time to banish budget blues.

Debt Consolidation Loans

A debt consolidation loan is a loan you take against your home for the purpose of retiring higher-interest consumer debt. Ideally, you can consolidate all your expensive obligations into one loan at a lower interest rate and with a manageable payment.

Simplifying payments into a single debt consolidation loan makes it easier to manage your finances, but the possibility of saving some real money by lowering the interest rate should also be explored.

Home loans are good candidates for debt consolidation loans because they typically carry lower interest rates than ordinary consumer debt. You might consider a home equity loan for this purpose, but with recent interest rate declines you should also talk to your debt consolidation lender about the possibility of refinancing your current mortgage.

If you can refinance your mortgage at a lower interest rate, you may be able to borrow a little extra and use it to consolidate your debts. This way you can save on both your mortgage and your consumer liabilities.

The potential downside for using your home to pay off consumer loans is that a mortgage is secured by your home, and you could lose it if unable to make the payments. Only use a mortgage as a debt consolidation loan if you have budgeted carefully enough and are confident in your ability to repay it.

Debt Management and Debt Settlement Programs

If a debt consolidation loan in not enough to help you manage your finances, you may want to look at debt management or debt settlement programs.  

A debt management program means making payments to a debt manager, who then distributes these payments to your creditors. A debt settlement program goes even further--your debt manager can negotiate with your creditors to try to reduce or restructure your debts.

There are some drawbacks associated with these programs. The fees charged add another layer of expense to your debt service, and programs may lack transparency--that is, it may not be clear how much of what you are paying is actually going to your creditors. Also, if creditors agree to write off some of your debt, it will probably affect your credit rating.

Still, reputable programs can offer much of the structure of bankruptcy, without the long-lasting negative impact of actually going through the bankruptcy process.

The Interest Rate Opportunity

Lower interest rates currently present a special opportunity to get control of your debts. If you shop around with debt consolidation lenders you may find you can reduce your interest expense enough to kick the budget blues -- not just for this season, but for good.

About the Author:

Richard Barrington is a freelance writer and novelist who previously spent over twenty years as an investment industry executive.