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How to Determine if Debt Consolidation is Right for You

Many people struggle with high balances on credit cards, and you may be looking for some relief if you are included in this group. Credit card consolidation offers many benefits under the right circumstances. For example, it can result in lower monthly payments and reduced interest charges. It also may set the debt up on a fixed term and help you to pay it off more quickly. However, debt consolidation is not ideal for everyone, and it is important to review a few factors before you make this important determination for your financial situation.

When You Qualify for a Lower Rate

One of the most important factors to consider when determining if credit card debt consolidation is right for you relates to the interest rate available to you through other sources. Some of the most common types of loans that are used to consolidate credit card debt are unsecured personal loans and home equity loans. Both of these options typically have a lower interest rate than credit cards, but you should ensure that you can qualify for the loan based on your financial situation and your credit rating. There are instances when a person’s struggle with debt has become so significant that they no longer can qualify for these types of loans.

When You Receive Some Financial Benefit

If you can qualify for a new loan that can be used for consolidation and if that loan has a lower rate, you may consider reviewing the financial benefit associated with consolidation. Compare the new monthly debt payment against the total monthly payments for all of the debt that you are consolidating. Pay attention to when the debt would be fully repaid based on the current and new scenarios. These are among the two most common financial benefits that individuals enjoy through debt consolidation, and in many cases, these benefits can be substantial.

When You Intend to Change Your Spending Habits

A final and critical factor to consider before you consolidate debts relates to your spending habits. Once you have rolled your credit card balances over to a new loan, you will have credit cards with zero balances and with hundreds or thousands of dollars of available credit. Some people have unfortunately charged their credit cards back up after consolidating debts, and this has created an even more burdensome debt issue. If you do this with a home equity loan, you put your home at stake as a result. Either way, you also face the risk of having to file for bankruptcy. It is wise to close most or all credit card accounts after consolidating to ensure that you cannot fall back into the same debt trap.

Credit cards can be difficult to pay off, but consolidation can often facilitate this effort. If you do not qualify for a consolidation loan, you may need to seek other forms of debt relief. Take time to explore the options so that you make the best decision regarding your personal finances.