Debt Consolidation Articles

By Andrew Bicknell

When your creditors are calling day and night and your mail box is full of letters threatening your financial ruin your best choice may be consolidating your debt to gain some breathing room. The stress of large amounts of debt wear on you day and night, many times causing poor monetary decisions to be made which further aggravates the situation. There is a way out and a debt consolidation loan may be part of the answer.

Notice I said it may be part of the answer. Consolidating debt is just one step on the way to recovering your financial well being. It is not the end all and be all of fixing the problem but it can help. You must remember that if you do do this you aren't getting rid of your debt you are in essence moving your debt from one creditor to another. The idea is to take all those payments and outrageous interest rates and trade them for one payment at a lower interest rate.

The first thing this will do is stop the harassing phone calls and letters. It will also return some sanity to your life that will help you make better decisions when it comes to budgeting and spending your money. You will be better able to plan for your one upcoming payment instead of worrying about trying to pay 8 or 10 different creditors.

The first thing you will need to do before going down the consolidation route is determine exactly how much you owe and to who. Get out a pencil and paper and in columns write down all your creditors, the total balance owed, the interest rate, the minimum monthly payment and the amount of interest being paid each month. Add all those items up at the bottom of the page and take a look. Until you know where you stand and how you got there consolidating your debt is pretty meaningless. The other thing to remember is that that total of the balances owed is what your loan will be and that can be quite humbling.

Once you know how much you will need you can start shopping around for the best terms for your situation. Most consolidations loans are borrowed against the equity in a home or piece of property, meaning that if you default on the loan you can lose whatever collateral you put up. So carefully consider the terms of the contract with special emphasis on interest rate and the monthly payment. The longer the payback term of the loan the lower the monthly payment and this needs to fit into your monthly budget with room to spare.

The other side of the equation to consolidating your debt is making a promise to yourself to quit using credit in your daily life. Cutting up all your credit cards and closing your accounts once you pay them off from the proceeds of the loan is a must. If you start charging up lines of credit after the fact you will soon find yourself in a much worse financial situation. The key ingredient to finding financial freedom is taking control of your money and having it work for you, not for your creditors.

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