There are a large range of experiences with debt consolidation ranging from the simple and successful, to horrifying accounts of financial ruin. Neither extreme is likely to be true in your situation, and it is possible that debt consolidation could be a good way to handle 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.
If you're thinking about a debt consolidation loan, make sure you consult with a professional knowledgeable about a wide variety of options, rather than someone who just wants to sell their product. Sometimes the best solution isn't a product, it may just be that you need to change your attitude about debt generally, or you might need a way to budget better or you may need some combination of professional advice and a change in spending habits. If you do wind up taking a debt consolidation loan, think about the repayment terms, generally, people want the lowest monthly payments but a longer the repayment period, actually means you will be paying more in the long run, as interest will be accruing on the debt for a longer period of time. Also lowering your payments but continuing with your old spending habits will just land you further in debt. Is a loan or a mortgage better for you, in handling your debt consolidation? In spite of the fact that you may receive a smaller Annual Percentage Rate if you went with a mortgage, also, more time to pay loans, your home could be 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 financial advisement? 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.
Consolidation can create the temptation to add to an already serious situation if you charge on those accounts while you are paying off your older debts with the consolidation loan. 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 behaviours in the past were responsible for the debt you now have? In order to reach your ultimate goal of paying off your debt it is necessary to identify the problem and behavious that led to the debt and correcting them, but this is not an excuse to create more debt.
Helen is a freelance journalist writing about bad debt at eComparison.