In too deep: Americans have nearly $800 billion in credit card debt. Is debt consolidation the answer to your financial woes?

OVER THE LAST DECADE, LARRY Williams, 46, and his family have lived a good life on a middle-class budget, They've vacationed in hot spots across the country and bought shiny, new cars and matching appliances for their two-story colonial in a private New York community. The only problem is they purchased these goods and luxuries courtesy of American Express, Visa, Sears, and other lenders. A lead agent at an investigative firm, Williams figured he could handle the spending splurges since he earns a decent salary. But somewhere along the way, his finances started spiraling out of control and by the time he sought help, he had more than $50,000 in credit card debt.

"This was years of accumulation of debt. For some time, I ignored the problem. In January 2005, I finally concluded that I needed help," says Williams. "I considered bankruptcy, but that was not a viable option for me. I figured, since I bought the goods and used them, the right thing for me to do is pay for them. I just needed to decide how I would get out of debt."

After reaching this point, the first thought for many Americans is to file for bankruptcy. In fact, more than 1.5 million individuals filed for bankruptcy in 2004. More than 500,000 consumers filed for bankruptcy in the week prior to Oct. 17, 2005, when the new bankruptcy law went into effect. But with new laws making it more difficult to file for bankruptcy, consumers are scurrying toward other options. Debt consolidation is one of them. But is it for everyone? If a financial quandary has you in too deep, read on to understand precisely what debt consolidation means, the different ways to approach it, and whether it's the best solution to reach debt relief.

Debt consolidation is a popular term marketed on television, radio, and in newspapers as a simpler, easier, less costly way to pay off your debts. "Simply stated, debt consolidation is taking several debts that you are paying monthly and converting them into one monthly payment of a lesser amount," says Norman H. Perlmutter, CPA, and former debt collection agency owner.

The reasons people find themselves in debt are endless. Some experience tragedies such as job loss or job reduction, incapacitating illness, divorce, or death, forcing them down a path of financial dependence on credit cards. Others mismanage their incomes and live beyond their means to keep up with the Joneses. At the end of the month, they can't pay their debts.

Maria Arvelo, 31, thinks she's pinpointed the reason for being more than $130,000 in debt with credit cards, doctors' bills, and, student loans. Arvelo, director of development at Fort Valley State University in Fort Valley, Georgia, attended private and out-of-state institutions for higher learning such as Saint Augustine's College in Raleigh, North Carolina; Old Dominion University in Norfolk, Virginia; and Clark Atlanta University, where she's earning her doctorate. At those colleges, she was targeted with credit card offers she gladly accepted.

"In my middle-class family, growing up in Columbia, South Carolina, we didn't discuss things like the importance of paying bills on time, the dangers of credit card debt, and making sure I didn't get too many student loans. We didn't discuss going to public schools as opposed to expensive private schools," says Arvelo. "I've made some really bad choices, and I'm trying to revamp my life. I think debt consolidation will allow me to focus on stability and financial freedom."

After she gets her doctorate, Arvelo will consolidate all of her student loans and then work to pay down her credit card debt. Debt consolidation is attractive to consumers like Arvelo and Williams, because it offers longer payout terms, lower interest rates, and, at times, a partial reduction of the debt principal or a tax write-off. Before you make a decision about the best way to get out of debt and obtain debt relief, let's review the options.