Debt can put a lot of pressure on people during the holidays. Shopping for gifts, traveling to see family and feast-worthy foods can add up fast. But instead of just biting the bullet and making indefinite credit card payments on top of other bills, the fairly novel debt consolidation is a hot topic. Debt consolidation promises to ease up cash and slash the money spent on interest payments.

But how does it work, and can it really help control debt?

"Debt consolidation is all about putting your debts into one account and making a single payment to pay off your debt," said Nathan Davis, a debt consultant with the online community Debt Consolidation Care.

He said there are a few ways you can combine your debt.

Mostly consolidation means the debtor will opt for a loan that will pay off all their debts but will have a much lower interest rate. You’ll need to decide whether you want to move your debt to a secured or unsecured loan. Unsecured means that the credit isn’t based on any collateral other than your credit score. Things like payday loans and credit cards fall under unsecured debt. Secured debt covers things like home equity loans and car loans.

A secured loan on home equity "is usually a win-win for a lot of people. It’s easier to pay off, but the margin is longer," said Tim Dwyer, with U.S. Bank. He said it’s a great option, but with the current housing market, it may be quite difficult to refinance your home -- especially if you owe more than your home is worth. Another danger is that if you let your debt get out of hand again, that money is tied to your home. If you end up defaulting, you could wind up losing the property.

"An unsecured loan is basically an upgrade to a lower interest rate," said Dwyer. He said keeping the debt unsecured is a good option for people with a lot of credit cards, past-due utility bills and several small loans. The downside is that debtors will need a credit score of about 680 or more.

The final option is going through a company that sells debt consolidation as a product. The company will work to attack the debt from all sides -- getting a lower rate from creditors and finding a new, lower interest loan. These companies, however, will charge a fee based on the amount they save you -- usually hundreds of dollars -- and since it is a major change in your debt, it can hurt your credit score significantly and should be thought of as a last option before bankruptcy.

So, where does the absorbed debt go if you do choose to consolidate?

Davis said the creditor, instead of risking a complete default, "loses money when you cannot afford to pay more towards monthly payment." He said if debtors are seeking a major consolidation, it means they’re close to just not paying the bills. In that situation, creditors will go a long way to break even before losing money.

In the end, you should only really use any debt consolidation program if you cannot make your monthly payments, but haven’t yet taken a big credit hit from missing payments. You should think of it as another loan rather than a trick to slash your payments. Experts said that even if you proceed with a debt consolidation measure, you can work yourself deeper into debt if you don’t get control of your spending.

But, as Dwyer said, if you have good credit and are responsible with your money, consolidation can ease interest payments and cut payments without many problems.

Steps To Consolidation

If you do decide on a debt consolidation plan, do your research: check everything about the plan and compare it to other solutions.

First, collect all your debt. A new creditor may take other debts or payments into account when reworking the debt. Take your records to your bank and see what they can do. Even if your bank cannot give you the ideal solution, use its offer as a comparison point.

Compare your bank's offer with other offers, but make sure to read all the fine print for up-front fees, late-payment penalties and the taxes you could end up paying on the new loan.

Go online and see what other people have done or get in touch with a debt consultant. Many sites offer free consulting, but they may be trying to sell their own services.

If you find a good option to consolidate your debt, make sure you keep up with the payments. The consolidation could be a good stepping point to walk away from poor financial decisions.

Try Other Options First

Before deciding to consolidate your debt, you should, however, try other approaches to saving money.

Make a budget. Sit down and decide how much you want to spend on gifts, food and holiday travel. It sounds simple, but every financial expert will tell you to look at ways you can save a few dollars here and there. Reminding yourself you need $80 for a new iPod for Christmas can put your money into perspective. Simply skipping a few nights out, opting for free office coffee or putting off some new clothes can help you stay on budget for the holidays.

Many banks have online features that allow you to see where you’ve spent your money with their card. Otherwise programs like Quicken can help. Seeing how much money is wasted can give you a lot of motivation to save that money.

Find a zero-percent credit card. For a little less legwork, you can transfer your debt to a zero-percent credit card to cut their high interest payments.

Financial guru Suze Orman suggested doing this, but if you can’t transfer all your debt to the card, she said you should make big payments on your high-interest debt and make the minimums on your zero-percent card.

You can find zero percent card offers online at places like Cardtrak.com.

You’ll need a very good credit score to get a lot of these introductory offers, typically over 700. If you have that kind of score and are willing to keep up with payments or move your debt to another zero-percent card when the rate jumps, it can be a great alternative to debt consolidation.

This strategy will help cut payments and free up some cash, but debtors should be cautious. If you miss a payment, that zero percent rate could skyrocket, leaving you in the same situation that sent you searching for the card in the first place -- but possibly with a lower credit score.

Contact your creditors. This sounds intimidating, but if you’ve been making headway on your credit card bills with few or no late payments, this could be a great solution. Your creditor isn’t going to cut your 25 percent interest rate to zero-percent like consolidators would, but they could bring it down to a more manageable 8 to 10 percent if you just talk to them. This is, in effect, what debt consolidators do. But avoiding the fees of consolidation and the credit hit may make up for the difference in interest.

Creditors, however, might not give you a break if they don’t think you’re a risk to their bottom line. So, think about what you’re going to say to them beforehand. If they think you are just looking for some extra cash, they aren’t likely to help you by giving up theirs.

Get credit counseling. There are a number of credit counseling services that will work with you and your creditors to get your payments down. Non-profit companies like the Consumer Credit Counseling Service will act as a liaison between you and your creditors and will have more clout than you in finding a solution to your debt. They usually charge a small fee of under $20 a month and, unlike consolidation, won’t adversely affect your credit score. Many consulting companies also have free counseling services with the hope that you'll use their services once you figure it all out.

Here are some more options for free debt consulting:
National Foundation For Credit Counseling
Consumer Credit Counseling Service of MD & DE, Inc.
Advantage Consumer Credit Counseling Service
Debt Consolidation Care
GreenPath Debt Solutions

Following one or more of these tactics may be more work than consolidation, but working through the problem and keep your credit score intact will build good financial wisdom for after the holidays and keep you from reverting to poor spending habits.