If you are in a large amount of debt and there doesn’t seem to be any light at the end of the tunnel on how to get it repaid or it’s getting you down because you think you will never be debt free then a debt consolidation loan may seem like a good idea. It rolls all the debts in to one easier to manage repayment, gets all existing creditors off your back and lowers your monthly expenditure so you have more money to spend on essentials. However there are also some drawbacks which have been well documented by the media so before deciding to go ahead and consolidate your debt, review these alternatives to debt consolidation:

Contact Your Creditors

The first thing you should do if you are in financial trouble is to contact your creditors and tell them about your position. You’ll be surprised to find out that many credit card companies will listen to your story and be willing to work out a repayment plan so that they can get their money back rather than have a situation where you are forced in to bankruptcy and they get none of their money back.

Credit Card Transfers

If you are just about keeping your head above the water when it comes to repaying your bills each month then you probably still have a good credit score which you can take advantage of. Many credit card companies are offering 0% interest rates on balance transfers for six or more months. This can give a lot of breathing room if you transfer some of your more expensive debts and allows you to pay off the actual debt rather than having the problem of paying off debt plus interest. Check the terms before you transfer though because there may be a fee to transfer the debt which just adds to the amount you need to repay.

Snowballing

Snowballing is the term given to a strategy to pay off your credit card debt. It involves paying the minimum amount on all credit cards then determining how much extra you can afford each month and using that to pay off your smallest debt. Once the smallest debt is paid you can move on to the next smallest debt. This means you are quickly reducing the number of repayments you have to make which is partly what causes the stress in the first place.

Budgeting

No debt relief plan would be complete without talking about making a budget. It may be that your debt has arisen because you were living beyond your means or your lifestyle choices didn’t match your income. By reassessing how and where you spend money you may discover that you can make significant cost savings, for example, trading in the gas guzzling SUV for something more economical could save you a few hundred dollars a month in gas.

Deciding to consolidate your debt is a big decision because it involves securing your house against the loan. Before you go down that path make sure you have researched debt consolidation alternatives.