Handling debt has become the biggest problem in today's economy as countries have still not totally recovered from the economic downturn of 2007. The situation is not different in U.S. As per Bureau of the Public Debt, national debt has increased by $1.65 in this year (2010).

Right from the year 1957, national debt has increased continuously by around $250.8 billion every year. The people too are finding it difficult to handle their personal debts as most have lost their jobs due to the recession. If you too are facing problems in handling your debts, you can try to consolidate your debts in order to pay off your debts easily.

Debt consolidation - What is it?

Debt consolidation is when your multiple debts are grouped into one new consolidated debt. With debt consolidation the interest rate is lowered and so the monthly payment is lowered too. After debt consolidation in place of making multiple payments, you are required to make a single payment each month. You can either try to consolidate your debts on your own or take the help of a debt consolidation company. In debt consolidation people generally take out a secured loan keeping their home as collateral. However, according to recent news people should avoid getting a secured debt consolidation loans though these loans are available at lower interest rates. If you takeout secured loan in order to consolidate your debts, your home is put at risk. In case of your inability to pay off the dues, your home can be taken away.

Which of your debts can be consolidated?

Generally, all of your unsecured debts can be consolidated, like:

1. Credit cards - If you have more than one credit card and you are facing problems in managing these, you can try debt consolidation.

2. Various Bills - All of your bills like medical bills, store card bills, and so on can be consolidated.

3. Payday loans - If you have several payday loans which you had taken out to pay off your debts, you can include these too in debt consolidation.

However, you won't be able to include any of your secured debts, like mortgage or car loan, etc in debt consolidation program.

What debt consolidation does for you?

There are various benefits of debt consolidation. These are:

- It helps you become debt free. When you consolidate your bills, it becomes easier to make the payments.

- It helps you enjoy lower interest rates. Debt consolidation loans are available at lower interest rates.

- Helps you pay less. As the interest rate is lowered, the monthly payments are lowered too. Thus, you have to pay less with consolidation.

- Debt consolidation helps you avoid bankruptcy. When you are facing problems in handling your debts and are deciding to file bankruptcy to get out of the debt problem, debt consolidation can help you stay away from it.

- Debt consolidation also helps you waive off some charges like the penalty fees.

- It helps you in making payments easily as you are required to make a single payment each month instead of the several ones that you had to make before.

- It helps you repair your credit score. As you make payments each month, your credit score improves automatically.

Another benefit that debt consolidation provides you is the tax benefit. If you take out a loan using your home as collateral in order to pay off your credit card bills, you will be able to get some tax benefits.

How has been the progress in debt consolidation?

More and more people are turning to debt consolidation as it helps you pay off your debts more easily without hurting your credit score. According to recent news, the delinquency rates on credit cards have lowered as people are trying to pay off their bills and become debt free. The Charge Card Index from Fitch Ratings puts that the delinquency rates on credit cards have improved consecutively for eight months. It improved by 66 basis points in the month of August.

Delinquency means when a person goes overdue by more than 30 or 60 days. According to Fitch Ratings, in August around 3.27% of credit card accounts were delinquent for 60 days and more, and around 4.34% of the credit accounts were delinquent for 30 days or more. This suggests that people are consolidating their debts in order to avoid delinquencies and become debt free.

You can consolidate your debts on your own by taking out a debt consolidation loan - secured or unsecured or can transfer the balances from high interest credit cards to one which has a low interest rate. Otherwise, you can also go to a debt consolidation company for help. A consolidation company will help you analyze your financial situation and prepare a budget. They will then enroll you into a consolidation program according to which you will have to make the payments. The counselor will negotiate with your creditors to lower the interest rate on your debts and may also request your creditors to waive off penalty fees. However, before going to a debt consolidation company, check if the company is an authentic one.

In order to check with the authenticity of a consolidation company, you can check if the company is accredited with the Better Business Bureau or BBB. You can also check if there are any complaints against the consolidation company. You will be able to get the complaint details from BBB and the State Attorney General's webpage. Also consult your friends and other family members who have consolidated their bills before in order to become debt free. Try to get help from consolidation companies which are non-profit ones. Non- profit debt consolidation companies charge you less fees as compared to the other companies. You should try to find out if the consolidation company is an authentic one because if you fail to do so, you can get scammed. As a result your debt amount will increase all the more and it won't be possible for you to get out of the debt mire.