The short answer is Yes. Certainly debt consolidation can help you save a significant amount. However whether it actually will, depends very much on your personal discipline and approach to money.
Debt consolidation is simply a process of putting into a single debt a group of debts – such as store cards and credit cards and other high interest rate unsecured debt into one, easier-to-manage loan. It can be a new personal loan, a low interest credit card or even your home loan.
The main reason why debt consolidation gets unstuck is that the borrower looses track of their initial intention with respect to consolidation – ie. debt reduction and payment reduction. Sometimes all that happens after consolidation is that the borrower returns to their old financial spending habits. These were the habits that got them into a bad financial position to start with. Remember that paying a lower interest rate on existing debt means little if your overall debt continues to rise.
Borrowers who consolidate debts need to put a debt reduction strategy into place. Those who roll credit card debt into a low interest credit card, must remember that this card is to be used to reduce their card debt only and absolutely under no circumstances should be used for more purchases. Low interest offers on cards are short term (6 -12 months usually). To maximize the financial benefit from this offer you should make every effort to pay down the card balance during this time. Then the exercise should be repeated again with another rollover until the debt is fully extinguished.
Those who roll debts into a new personal loan or a mortgage need to make sure that they actually continue to pay down the debt not merely meet the minimum debt repayments monthly. This is to ensure that the debt is repaid ASAP. It would be a mistake to continue accumulating new debts while still trying to repay old ones.
Personal loans generally have lower interest rates and fees than credit cards and store cards, helping some people to repay their debts sooner. However the catch with personal loans is that they do require the borrower to have a clean credit history. Borrowers who are experiencing financial hardship will not qualify for a personal loan.
Borrowers who decide to approach their creditors for a debt agreement (a form of debt consolidation for people who are unable to pay their debts) need to ensure that they abide by the agreement. If they fail to follow the terms of the debt agreement they may find that their creditors will lose trust in them and take action to declare them bankrupt.