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Is Consolidating Your Debts the Right Move?

Aug 17, 2007
Being in a large amount of debt is painful. The interest rates add up fast and making payments can make it difficult to scrape together enough money that you don't have to charge more on your credit cards.
Debt consolidation sounds like a wonderful solution in such a situation. Lower payments. A lower interest rate. The ability to make payments without suffering so much financially.

The trouble with debt consolidation is that it doesn't address the core of the problem. If you haven't changed your spending habits you are too likely to just charge those credit cards back up again and make the problem worse.

This means that if you decide to go for debt consolidation it will be a wise idea to close those credit card accounts you are clearing up. If necessary you could keep one open for emergencies, but make it hard to use so that you are not tempted to have fun with it.

As you look at debt consolidation, don't focus just on the lower payments. Think about how much more it will cost you. Even with a lower interest rate, debt consolidation can often make you pay more in the long run because you're paying interest for a longer period of time.

If you can manage it, go for a debt consolidation plan that doesn't extend how long you pay or increase your interest rate. This won't necessarily make life easier, aside from allowing you to only pay one company rather than several, but it can get you out of debt sooner than if you don't consider these factors.

To start this process, take a look at what you owe and what interest rates you are currently paying. The ideal debt consolidation loan will give you a lower interest rate. If you can manage it, once again, extending the term over which you are paying off the loan is not a good idea.

Then look at your current spending habits. Write up a budget that you can live on with your current income. Try to include the fastest possible payment of your loan, without creating new debts. Think about the things you can cut. If you're serious about taking control of your debts you will find ways to cut back.

Research various debt consolidation loans and pick the one that is best for your situation. It should cost you less over the long run but still have payments you can comfortably make. Decide whether you just need the loan or if you need a debt consolidation agency to help you learn to control your finances. Many people do need that extra help to break bad financial habits.

The good thing about all of this is that it means you have a way to regain control when your debts are nearly impossible to deal with. Make the changes in your lifestyle as you pay down your debts and you can avoid going through this again.
About the Author
Stephanie Foster blogs at http://credit-blog.findcreditonline.com/ about credit related issues. If debt consolidation turns out to be right for you, she offers resources at her website.
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