Consolidate! It seems to be the new fad in the world of consumer debt—the magic bullet that will effectively rid your life of all problems with credit card debt.

The advertisers, credit counselors, and financial experts are all shouting out:

“Slash your interest rate!”
“Save thousands of dollars!”
“With one low, monthly payment you’ll have extra money!”

And you know what? Consolidation can be a great option for digging your way out of credit card debt. But what the advertisements don’t tell you is that it’s not a magic bullet. Consolidation is a re-payment plan that is successful only when you are determined to do what it takes to make it work. It will take planning, determination, and a little elbow grease. But you can do it! Here’s what you need to know.

Find the Underlying Cause
The first step in any debt re-payment plan is determining the underlying cause; otherwise, the problem will happen again and again. Typically the problem is not the credit card itself. They are a great tool of convenience and security. Many people use them in a financially responsible way everyday. So if the problem is not the credit card, what is?

Overspending Habits
Let’s go ahead and face it. Sometimes the problem comes with just the bad habit of spending too much money. Credit expert Gerri Detweiler, author of The Ultimate Credit Handbook and founder of DebtConsolidationRx.com, says the two largest areas people tend to overspend is in the area of food and transportation. She’s heard of people spending $160 a month at the office vending machine! So maybe it’s time to take a reality check. Spend a month tracking every single expense down to the penny to see where your money is going. Then take the time, and maybe even help from a credit counselor, to setup a budget and a plan to stick with it.

A Life Crisis
Emergencies happen to everyone. Unfortunately people we love die, life-long careers disappear, and, as we’ve all seen in the news lately with Hurricane Katrina, natural disasters create havoc. All too often we are unprepared for such events and we end up putting a lot of expenses on credit cards. As you analyze your budget, it’s a good idea to determine a set amount to save each month for emergencies. Ideally, if your budget allows for it, a good amount is 5-10% of your take-home income. But if you can’t manage that much, then set aside as much as you can.

Big Life Events
Now I’m talking about events we expect—weddings, babies, college educations, family vacations, etc. Don’t let these events sneak up on you without some financial planning. The earlier you start, the better off you’ll be. And if for some reason the anticipated event doesn’t occur, at least you’ve built yourself a nice little nest egg.

Setting Aside Credit Cards for a Time
When you start consolidating debt it’s important not to accumulate any new debt. Trying to deal with a consolidation loan along with new consumer debt only builds layer upon layer of financial trouble. The accounts don’t have to necessarily be closed, but at least put the credit cards in an inconvenient location such as in a cup of frozen water in the back of the freezer, a safe deposit box, or even six feet under in your backyard! Once the consolidation loan is paid off, you’ve brought your finances back under control, and you’ve learned new healthy financial habits, then go ahead and bring them out from hiding if you want.

Lower Payment vs. Lower Cost
A big mistake many people make when consolidating debt is looking at the payment amount alone. Sure you can lump all your payments together into one low monthly payment, but what is your interest rate, fees, and length of the loan? A $5,000 loan at 10% for 15 years with a monthly payment of only $53 will cost you $2,000 more than the same amount at 18% for 5 years with a monthly payment of $126.

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Editor's Note: This article is the first in a two-part series containing consumer tips regarding credit card consolidation. Please click here to read the second article in this series.

By Amy L. Cooper-Arnold, CardRatings.com Reporter