Make the most of a debt consolidation loan
Consolidating all of your debt into one convenient monthly payment may seem like an organized and less-costly debt management solution, but first consider the risks. Using a debt consolidation loan may relieve some of your financial anguish if you’re in the right financial position, but it could leave you worse off if you’re not.
Budget for the loan payment
Before agreeing to combine your debts into one monthly sum, make sure you can actually afford it. Many jump into a consolidation loan thinking it’s cheaper, but if the loan has a high interest rate, it may be more costly. Also, if you take on a home equity loan and default, the result is foreclosure.
Compare the cost
When considering consolidation, make sure to calculate and compare the cost of the loan with the cost of just combining credit card payments. Depending on the loan, it could cost you more to consolidate than to simply pay off the credit cards individually. Use Bankrate.com’s debt consolidation calculator to analyze which option is better for you.
After your cards are paid off with your debt consolidation loan, don’t use them again. One common mistake among consumers is falling into the same old spending habits once the debt is paid off. The availability of your credit cards can be very enticing. Better to freeze them in a block of ice, lock them away or, if necessary, cancel and cut them up; just don’t give in to more debt.