When to Consider Debt Consolidation

Everyone has heard of debt consolidation, but few people have a clear understanding of what it is or how it works. For many people, debt is the main thing that keeps us up at night, and it can get to the point where we feel unable to climb out of the financial hole that is significant debt. If debt consolidation offers a legitimate answer to this problem, it would certainly be worth investigation.

But at what point should you begin to seriously consider this as a possible solution to your financial problems? This article is designed to help you understand the basics of debt consolidation and some of the situations in which it might be a good option. Of course, everyone’s individual debt and financial situation is different, but this will provide you with a few common instances in which debt consolidation has been helpful, as well as some cautions for when it might cause even more trouble.

What is debt consolidation?

While there are many options available for debt consolidation– some more complex than others– the basic concept behind them all is pretty simple. Generally speaking, debt consolidation involves taking out one large loan in order to pay off all of your current debts. When done correctly, this essentially allows consumers to roll all of their current loans, credit card balances, medical bills and other unsecured debts into one monthly payment, ideally with a lower interest rate than the current debts.

This simple solutions has allowed many people to avoid collections, credit problems and bankruptcy, but it is not a magic wand. In order for debt consolidation to work, you have to be serious about paying off your debts and changing the behavior that allowed the situation to reach the point where consolidation is necessary. Those who go through with a debt consolidation option, only to continue to run up more debt, will find themselves in an even deeper hole.

But if you are serious about getting out of debt, and you are able to stick to a solid financial plan, debt consolidation can be a life-saver that allows you to achieve a level of financial freedom that you probably thought would never again would be possible.

When should I consider debt consolidation?

Before you begin to consider debt consolidation as an option, you will need to take an honest, realistic look at your overall debt and your income. If you can pay off your debts in under a year without consolidation, try doing it on your own first. You can usually negotiate better rates with your credit cards and other creditors simply by calling and asking.

Most debt consolidation loan companies for bad credit give loans for periods of between three to five years. So you will also need to determine whether you can realistically pay off your debts in this amount of time, even with consolidation. If you cannot, or your total unsecured debt is more than half of your income, you may have no choice but to move straight to bankruptcy. Getting yourself into another debt that you are unable to pay with a “hail mary” debt consolidation plan will only cause more problems.

Am I prepared for change?

Most importantly, you also need to determine whether or not you are ready to change the patterns that allowed your debt to get to this point. If you go into a debt consolidation loan without a solid financial plan– or your abandon the plan along the way– it cannot be successful. You may need to seek the advice of a financial advisor, but always remember that many independent and bank advisors have goals of their own and may not be completely unbiased.

If you are ready to make some real changes and finally dig yourself out of the hole of insurmountable debt, debt consolidation can get you back on the road to financial freedom and happiness.