Do you sometimes feel like you're up to your ears in debt with no way out? If so, debt consolidation may be the route to go. There are other options of course, but not all make good financial sense. Consolidation can make payments more manageable and they can ensure the debt is paid off in a timely manner if you put your mind to the effort.
Debt consolidation loans basically are those that take a number of different financial obligations and roll them into one loan with, hopefully, a lower overall interest rate and monthly payment. Rather than paying 10 or 15 bills a month, a person with a debt consolidation loan pays a single location. This can be done through a signature loan, a mortgage refinance or even by using a large credit line, low interest rate credit card.
Making the decision to consolidate debt can be a good one, but there are some things to consider:
* How much debt do you have? If you only have a few thousand dollars you can pay off with some discipline, a new loan may not be the answer.
* Look at interest rates. This means on your home, your credit cards, vehicles and so on. If you have five low interest rate cards, it doesn't make sense to roll their balances into a new mortgage at a higher rate.
* Long-term goals. Set these to help you decide if consolidation would be of benefit. Generally, if you'd like to be debt free in a set number of years, consolidation can be a good tool to use. Since the ideal consolidation is lower payments with lower interest rates, this can mean a final payoff would be easier to reach in a faster manner.
If you've decided to go the consolidation route, look at these things before signing the dotted line:
* Make sure you get a fair interest rate. If the rate is higher than your old debt, it may not be worth it.
* Make sure it's a simple interest loan. This means you can pay it off at any time without penalty.
* Make sure you can afford the bottom line. This is especially so if you are refinancing your home. Consolidating doesn't do you any good if you can't make the house payments and find yourself in a foreclosure.
Generally debt consolidation is a very good way to go. If you use your noggin and close accounts and don't charge up more debt after you've completed a consolidation, you could be well on your way to being debt free. If you don't, the implications can be very costly for you, your family and your credit in the future.
If you choose not to go with a consolidation, other options do exist. Consider making higher payments on your lowest balance card until it's paid off. Then take the money you've dedicated to that account and put it on the next highest balance one. Rinse and repeat this process until you're out of debt. Close accounts that have a zero balance to remove the temptation to charge more.
Consolidation and good debt management when coupled with common sense can help a person or couple get out of debt faster and more efficiently. Be certain to weigh the options and use your head and you'll be happy you made the first step toward being debt free. |
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