Wed Jul 17,12:48 PM ET
By EILEEN ALT POWELL, AP Business News

NEW YORK (AP) - The pitch on late-night TV or in mail solicitations is appealing: Consolidate your credit card debt! Slash your monthly payments! Reduce interest rates! One easy monthly payment!

A debt consolidation loan might be tempting to many consumers who feel overwhelmed by a growing monthly mountain of bills. After all, credit card debtis approaching an average of nearly $2,500 for every man, woman and child in the country.

Credit experts say, however, such offers should be accompanied by a big "BORROWER BEWARE" notice.

"A debt consolidation loan is not necessarily a bad thing," said Kathy McNally, vice president for financial literacy at the nonprofit National Foundation for Credit Counseling in Silver Spring, Md. "But you have to make sure it's not one more loan added to your stack of existing loans."

The bottom line, she said, is: "If you don't change your buying and borrowing habits, you're just adding to your debt."

Sandra Escala, 31, who works with the criminal courts in Orange County, Calif., learned that the hard way.

About 10 years ago, she got herself a loan for $5,700 from a credit union to consolidate and pay down her credit cards. It was an "open ended" loan, so each time she paid it down, say to $5,000, she could borrow back to the $5,700 limit. And she did.

"I didn't change my habits," Escala admits. "I was still spending out of control. ... That consolidation loan ended up putting me even further into debt."

After she eventually fell behind on her payments, the credit union served her with a civil judgment. "That totally devastated me," she recalls.

In 1996, Escala sought help from the Consumer Credit Counseling Service of Orange County to deal with $14,000 in debts. Counseling services try to take a holistic approach, teaching clients how to budget and manage money so that they can stop overspending and pay down their debts. In Escala's case, they helped get late fees canceled and interest rates reduced so the payments were more manageable. Escala paid off her debts over the next four years - and saved enough to buy her first home.

"I learned that if I can't afford it, I can do without," she said. "I don't get my nails done; I do them myself. I don't have cable. I iron my own clothes. If I don't really need it - or if I can do it myself - I don't spend the money."

Jordan Goodman, author of "Everyone's Money Book," said many Americans are suffering from what he calls "the treading water syndrome" - their minimum payments don't make a dent in credit card balances boosted by more spending, high interest rates and late fees.

"They think, 'If I put all these debts into one debt, I'll solve my problems,'" he said. "Unfortunately, they then charge up their credit cards again, so they have the cards and the consolidation loan to deal with."

Goodman said consumers should be especially careful about trying to get rid of credit card debt with a home equity loan.

"It looks like a good way to go, because the interest on home equity loans is tax deductible," Goodman said. "But you could be risking your house."

The only way it works for most, he added, is "cut up those cards or you'll be back in the soup again."