Why debt consolidation is not your best bet

Why debt consolidation is not your best betWhen debt is bringing you down and your credit history is taking a major hit, there is always the temptation to consolidate your loans. Sure, a lower monthly payment may seem like the ideal way to climb out of the empty money pit you've dug for yourself, but what are the long-term effects?

If you aren't making ends meet on your car loans, mortgage or credit cards, it makes sense to lump the debt into one large sum, in which you'll pay a smaller monthly installment. What many people do not realize is that once you consolidate, you also extend the lifetime of the loan, which is how the creditors are able to lower your payments.

What does this mean for your finances? Essentially, you are throwing money away – thousands of dollars could simply be going to the interest you accrue over the extended period of time. The basic idea is a simple phrase to remember, according to financial adviser Dave Ramsey, "if you stay in debt longer, you pay the lender more."

A better way to manage your debt is to make a lifestyle change and to give your spending habits a makeover. Ramsey says to "commit to getting on a written game plan and sticking to it."