Debt consolidation is one option when it comes to getting your debt under control because you owe too much money to your creditors. If you do it right and debt consolidation is appropriate for your situation, you’ll be able to pay off your debts faster, and with a lower interest rate, which will also save you money. So how do you know if debt consolidation is right for you?
Debt consolidation involves using credit and new debt in order to pay off other debts. In effect, you exchange multiple payments to all your different creditors for one payment to one creditor. This not only makes it easier to pay off your debts but will lower your monthly payments as well due to a lower interest rate on your one debt.
You’ll get out of debt quicker and improve your credit rating as well.
In order to benefit from debt consolidation you’ll need to make sure you meet the following criteria.
1) The interest rate on the new debt must be lower than the interest rate on the debts you are currently paying. For example, you could transfer multiple credit card debts that have interest rates of 21%, 22.5% and 24.99% to a new credit card that has a 12.9% interest rate. Or, you could get a home equity loan with a 8.9% interest rate to pay off all your debts that have a higher interest rate than 8.9%
2) Lower your monthly debt. You want the monthly payment on your new debt to be lower than the combined monthly payment of your current debts.
3) No variable rates. You don’t want your new debt to have a variable rate. You want it to be a fixed rate. A variable rate may start out low but it can get you in trouble later.
4) Pay off the debt fast. All the money you save with your debt consolidation should be used to pay off your debt as quickly as possible.
5) No more new debt! If you don’t adhere to this debt consolidation tip, you ruin all the other positive things you are doing to get out of debt.
If you can meet the above criteria, debt consolidation may be an important part of your get out of debt strategy.
Learn more about how to use debt consolidation tips with Freddie Johnson’s free articles on debt relief, debt consolidation, debt management and credit repair tips at http://www.mydebtconsolidationtips.com