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Is Debt Consolidation A Good Choice?

For many people, consolidating their debts seems like an obvious choice. You get one loan, and then you only have to pay one loan off each month rather than many creditors. It eliminates or reduces many creditor calls and letters, which can greatly lower your stress.
But credit consolidation is not for everyone. Not everyone needs to consolidate their debts, and not everyone should consolidate, either by borrowing money to pay off the debts, or by using a debt consolidation service.

Some people are simply not in enough debt to justify going to a debt consolidation or credit counseling service, as while a debt consolidation service would ensure all of your debts got paid off, it is sometimes possible to do this faster by yourself. This, of course, is only true if your debt occurred through an emergency such as medical expenses. For those who have spending problems, a credit counseling service may be necessary to get out of debt.

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 Don't consolidate your debt until you have made certain you are aware of all of your options. Consolidating debt can actually end up being disadvantageous for some families, and being sure that it is the right choice for you before you commit to it is important.

For some people, whether or not they consolidate their debt may depend on whether or not they qualify for a second mortgage or other bank loan. But watch what interest rate you are offered on that loan, as it may be higher than the interest you pay on student loans. The interest rate on the loan is actually very important, because if it is higher than what you are paying on most of your loans, you may end up in the end paying more than you would if you continued paying all of your creditors separately. Use an online calculator, or just sit down with a lot of paper, and determine how long it will take you to pay off your debt as it is now, and how long it will take if you consolidate. Balance this information against your own personal factors, such as your credit score, whether you will be looking at selling your house in the near future, and your own level of comfort with debt. Also keep in mind that many people consolidate with a bank loan or second mortgage, and then end up charging again because they cannot meet expenses. If your debt occurs because your income does not cover your bills, consolidation will not help, as it will not increase your income or decrease your bills. Also, if you use your house as collateral for the loan and then default on the loan, you could lose your home.

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