Feel like you're drowning in an ocean of debt? Can't figure out a way to settle all your accountabilities? Debt consolidation might provide the solution to all your debt-ridden worries. Debt consolidation simply means rolling all your various debts into one liability.
Now why would you want to do this? For one thing, you only need to worry about paying one debt every month, which will make managing your financial affairs easier. You'll also be paying a lower interest rate - assuming you get to choose the right debt consolidation scheme, that is - and you'll get to estimate how long you'll be paying all those debts.
Debt consolidation however, despite its various benefits, is neither simple nor easy to undertake. You need to know exactly what you're going to do. Otherwise, it could bring you more financial disaster.
- If you're not confident in your financial know-how, then it would be best to consult a financial adviser on this matter. Go through your financial records with him, and be thorough about it. Ask questions. Ask him what other options you might have, other than debt consolidation.
- You can also approach a debt consolidation company, but make sure that you're consulting a valid and legal institution. Scams are rampant nowadays, and you just might end up being swindled out of all your money.
- Before making the final decision to consolidate your debts, approach your bank or lender and find out if it will be willing to grant you lower interest rates or more manageable monthly payment schemes. You might be surprised to discover what allowances your lender might be willing to give you.
If debt consolidation is the only option, then choose the best type of loan to get. The money you get from this loan will pay off all your other debts, thus you only have one loan to worry about. Unsecured loans may be out of the picture, as lenders might not be willing to give an unsecured loan to someone who already has various debts - some of which might be unsecured themselves.
- A secured debt, like a home equity loan, might be your best option. There are even tax deductions, which might be available for this kind of loan. Aim for the lowest interest rate possible. If you think you cannot meet the monthly payments, however, then don't choose this kind of loan, or you'll end up homeless. The same goes for car loans, too. Be absolutely sure that you can meet the payments when they fall due.
- Some also opt to get a new credit card with a lower interest rate, and transfer all other balances to that. If you choose to do this, look for introductory rates, which are lower most of the time. Don't miss out on a monthly payment, as this usually results in late-payment fees.
- Know all the miscellaneous fees that will be charged against you. You might be saving by paying a lower interest rate, but spending a lot on associated charges, which makes debt consolidation utterly useless.
Upon choosing your debt consolidation scheme, be sure to keep yourself informed of when monthly payments are due. Be vigilant in your payments, to keep your credit record spic and span, and of course, to avoid incurring more debts and additional charges for late payment.
Most importantly, try to keep your spending impulses in check, so you won't acquire any more debts. Life is much more enjoyable when you don't have to worry about monthly payments.