You’ve seen the flashy adverts on TV that promise to eliminate your debt worries and now you want to know what steps you need to take to consolidate your debt in to one easy to manage loan. This article will guide you through the things you need to do to consolidate your debts.

Is It Right For Me?

Consolidating your debt is not recommended for most people. Infact research suggests that people who opt for debt consolidation often end up in a worse financial position in a few years time because they didn’t address the basic problem that lead to the debt in the first place. What’s more, if you lose your job the debt is now secured on your home which you could lose if you don’t keep up with the repayments.

What Are The Alternatives?

There are alternatives that you should consider before opting for a debt consolidation loan. Consider talking to your creditors first and explain the situation to them. Apply for a credit card that offers interest free rates on balance transfers for 6 months or more and look at your budget to see what you can cut back on.

Am I Eligible?

The way a consolidated loan works is it takes your high interest unsecured debts and turns it in to a lower interest secured loan. However if you don’t own a property or already have secured loans on the property then your interest rates will be very high – making any cost savings negligible. Also, if you have a poor credit history then this will also affect the rate you will receive.

Understand The Rates and Repayment Periods

The selling point of debt consolidation is that it can drastically lower your monthly repayments, in some cases it can more than half your monthly debt payments. However this comes at a price because the repayment period can be significantly longer so you can end up paying far more in interest than if you simply continued to repay your debt as normal. Make sure you calculate not just have much you will save per month but how much extra you will have to pay in the long term.

Research Consolidation Companies

The industry is rife with unscrupulous companies looking to rip you off with hidden charges, fees and penalties so do your research before choosing a company. Use Google to see if others have had any experience and refer to your local Better Business Bureau to see if they have any knowledge about the consolidation company. Be aware of companies charging too good to be true rates or processing fees as this could be a major red flag.

Treat The Cause of The Debt

Once you have applied and been approved for a debt consolidation loan then you need to treat the cause of the debt. If you lost your job or had medical bills to pay then use the money you are saving each month to build an emergency fund, if you lived an extravagant lifestyle with the latest electronics, fashion and went out a lot then cut up your credit cards and make a resolution to live within your means.