Debt consolidation, which sounds like a fancy and complicate idea, is really a very simple thing. Debt consolidation, in its lowest form, means taking all of your high interest consumer loans (credit cards, etc.) and placing that debt into one lower interest rate loan. Not complicated at all – right. Well, not on the surface.

Debt consolidation sounds like a great idea that should be done at every possible turn – in order to save you money. Not so fast – like everything else in life, there are pros and cons to debt consolidation. Here are just a couple of them.

• Hire a Debt Consolidation Company, or do-it-yourself? For pure convenience, hiring a debt consolidation company would be the best option. For a fee (sometimes a rather large fee) these types of companies will analyze your financial information, then recommend ways that you can save money by taking out a new loan to cover your debt. Sounds simple – right? Yes, but would you really be getting the best deal? Saving the most money? Doing what’s really in your best interest? Well, in a word: no. Debt consolidation companies do not have your best interest at heart – they’re looking for the biggest profit they can make. And if they can save you some money too – great. But, no matter what they say, you are definitely not numero uno! My recommendation is to consolidate your debt yourself. Find a great book on debt relief, talk to an accountant or a tax lawyer. Ask others who have been through this what they did. In short, you need to educate yourself. This is not terribly complex – the basic idea is very straightforward. Just remember – at the end of the day, for debt consolidation to work , you need to see real savings. Monthly savings and long-term savings.

• Is Debt Consolidation a real long term solution? The answer to this question is a definite maybe. A “yes” answer hinges on your financial maturity and willingness to change your spending habits once the credit cards are in the clear. The absolute worst scenario is one that you place all of your debt into a low-interest rate personal loan, but, keep spending on the credit cards just like before. Mentally, some will see credit cards with no balance and assume they’re rich – and spend like there’s no tomorrow. Soon, their debt level is so high there is no hope of recovery – just the ugliness and shame of bankruptcy. While others will sober up and change the way they spend money – living beneath their means, cutting up the credit cards and setting up a budget with the goal of never placing themselves in financial danger ever again. In this instance, debt consolidation is a good thing.

For many of us, these two little words, “credit score” are shrouded in mystery, and sometimes even fear. It’s a fact that any professional who loans money holds these two words very near indeed, for the quality of your credit score determines if you can borrow money, how much and at which interest rate.

Your credit score can be found in your credit report (also known as your credit history), which is compiled mainly by three companies in the US., Experian, Equifax and TransUnion, also known as credit bureaus. Your credit report is a history of how you have borrowed money, and how you’ve paid it back.

All debts that you have (current and past) will be on your credit report, listed by who holds the debt and your history of paying on that debt. Some basic personal information is included such as your full name, social security number and current address (and some past addresses). Only facts are included in your credit report – there are no comments, etc.

Current loans, as well as paid off loans are included. Late payments – 30, 60 or 90 days late are shown for each current account. Debts held by collection agencies and bad debt charged off (debts that you never paid) are included as well, and all of this factors into making your credit score.

When most anyone is considering loaning you money – credit cards, auto loan or home mortgage – they will consult your credit report, and look closely at your credit score. Credit scores range from 300 to 850 points and look like this:

• 700 - 850 — Excellent or Very Good Credit
• 680 - 699 — Good Credit
• 620 - 679 — Okay or Average Credit
• 580 - 619 — Low Credit
• 500 - 580 — Poor Credit
• 300 - 499 — Bad Credit

The higher your credit score, the better the chance you’ll have borrowing money, and the lower your interest rate will be.

Where does the information for your credit report come from? Most creditors (i.e. Credit cards, banks, and others) report your credit history to the credit bureaus (see above) in return for credit information about other creditors. All accounts are updated on a monthly basis – creditor information is transmitted automatically to the credit bureaus, so your credit report is up to date.

You can order your credit report each year from one of the above credit bureaus – free of charge.

You can also challenge wrong information on your credit report – but this must be done by mail, and be fully documented.

Usually, information about you that is considered bad (debts sent to collection or charged off, lawsuits and judgments, paid tax liens and most criminal records should be purged after 7 years. Bankruptcies stay on your credit report for 10 years. Positive information and records of criminal convictions stay on your credit report forever.