Most of us have heard varying accounts of debt consolidation, while some promote consolidation as a simple and effective means of debt relief, others give terrifying accounts of increased debt and ultimate financial disaster. As usual, the truth is something in between these extremes depending on your individual situation, debt consolidation could potentially be a good way to decrease your debt. However, the value of debt consolidation programs can vary based on many factors, such as the amount you owe, your earnings and the types of debt you have. How well you do with a debt consolidation program may depend on your ideas about debt and money, so be sure to keep these principles in mind.
Your first step in debt consolidation is to locate a qualified professional debt adviser -- someone who will acquaint you with many options, and not just push the product they are selling. It may not be necessary to purchase a product. It may be that you need to re-think your attitude toward debt in general. Or, possibly, a combination of professional advice and a change in spending habits may work best for you. If you end up going the debt consolidation route, think long and hard about repayment terms: lower payments are going to be a trade-off for longer terms, higher interest, and increased debt. If you only lower your payments without bothering to change your spending habits, your debt will continue to grow.
Would you be better off with a debt consolidation loan or a debt consolidation mortgage? Even though a mortgage might give you a lower Annual Percentage Rate more time to repay your debt, you would be putting your home at risk.
If payments on your debt are becoming too much, it's time to do something different, a debt adviser will be able to help you in making certain decisions. Do you need a professional debt solution? Everyone's situation is different and not every situation is applicable to every person. As such, a debt advisor can be quite helpful in choosing the right one.
Don't charge the debt consolidation loan you have taken to credit cards, store cards or overdraft accounts. When you are using the consolidation loan to pay off the older debts, and being charged on those accounts, consolidation tempts to make the situation more serious. You may wish to keep one credit card for emergencies, but not without first analyzing your spending habits because if you continue to pile new debts on top of the old, you will just keep widening the hole you were trying to get out of. What did you do in the past that led you to your current state of debt? Identifying the problem and behaviours and working to address and correct them can help you avoid getting into debt again, the goal of consolidation is to give you a workable solution to pay off your debt, not a new excuse to create more debt.
Maria is a freelance journalist writing about loans at eComparison.
