Getting a credit consolidation loan

Paying down multiple lines of credit at the same time can be complicated. A credit consolidation loan can be a powerful tool, but choosing the right loan requires some homework.

Take an inventory

Before you apply for a credit consolidation loan, educate yourself on the ins and outs of your current credit situation. Consider all of your current loans and their interest rates to get a realistic picture of how long it will take to pay down your current debt.

The big picture

Review your entire financial picture before you take out a credit consolidation loan. While a single, lower payment sounds appealing, is there anything else you can do to contribute more to your current bills? Are you saving a chunk of cash that you could use to pay more than the minimum balance on your credit cards? Should you borrow from your 401(k) to pay down this debt instead of taking a new loan?

Shop around

All credit consolidation loans are not created equal. If you have a subpar credit score or no collateral with which to secure your loan, some banks might offer you steep interest rates. As you begin searching, be sure to compare rates at community banks and local credit unions. Some might be able to offer a lower interest rate than you will get from a financial giant.

After you determine whether debt consolidation is right for you, continue to work toward paying off your debt by contributing as much as possible each month.