It’s no secret that debt is flat out stressful. Whether it happened because you were living beyond your means, or because some unforeseen situation like job loss or illness came along and pulled the rug out from under you, debt can give you a headache. Debt consolidation is one way to relieve that headache -- but there are several things to consider.
Your debt may be controlling you right now. You’re dodging phone calls, ignoring that stack of bills and barely sleeping because you're too distracted by mounting debt. But it’s important to take control of debt as quickly as you can. The longer you wait to face it, the worse it gets, and when you finally do decide to seek help in the form of debt consolidation, you might be stuck with higher interest rates. Even worse, your credit score might have dropped enough to render you an unworthy candidate for a home equity loan, or other consolidation loan.
Eliminate Before Consolidating
You know that treadmill in the corner that you hang clothes on, the video game console you haven’t touched since college and the electric guitar you swore you were going to learn to play some day? Get rid of that stuff by selling it online, or through a local consignment shop. Even those designer bags or sunglasses taking up space in your closet can earn you extra cash. Once you’ve sold those things and have a nice chunk of extra cash, make a list of all your creditors and how much you owe each one. Go down the list and see how many debts you can eliminate. Maybe you can pay off what’s left on that department store credit card with the few hundred dollars you made on the treadmill. Be resourceful. Use whatever means you have to eliminate as much debt as possible, before you start to consolidate. That way, you’ll be able to consolidate your debts with a smaller loan.
Do Your Homework
Consolidate your debt into one loan, and one monthly payment. There are plenty of debt consolidation companies around to help you, but be careful to do your homework. Don’t be tempted to go with the first company you come across. Read the fine print, and understand exactly how much you’ll be paying at the end of the loan. Make sure you can afford the single payment, and that you can pay it off in a reasonable amount of time. Ask questions if there are any parts of a consolidation loan you don’t fully understand. Make sure there are no clauses enabling the lender to increase your interest rates, and have your lender explain any fees. Compare their fees with other consolidation companies' to ensure you're getting the best deal.
Weigh Your Options
Specific debt consolidation loans may not be your only option for getting your payments to a manageable size. If you own your home, you may consider a home equity loan. Interest rates are typically lower, and if your credit is still in good standing, a home equity loan may provide you with the funds to pay off your debt and then make the one payment. The drawback to a home equity loan is that you run the risk of losing your home if you can’t afford the payment. Depending on your credit status, and how much debt you have, you may be able to secure a personal loan from a bank. Weigh all your options carefully before deciding which to choose.
Based in South Florida, Leann Harms has been writing since 2008. Her design, technology, business and entertainment articles have appeared in "Design Trade" magazine and Web sites including eHow. Harms has a Bachelor of Arts in English from Florida Atlantic University.