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Consolidating

Posted September 3rd, 2010
by PersonalLoans.org Staff

The majority of Americans are up to their eyeballs in debt. Over forty percent of American households actually manage to spend more per year than they bring in. It doesn’t take a rocket scientist, or even an economist, to figure out that’s a recipe for disaster. It’s no wonder we have so much economic stress when the average household in our country carries more than $8,000 in credit card debt alone. That says nothing, of course, about mortgages, car loans, personal loans, or any other kind of debt.

One of the best ideas ever introduced on the American financial landscape, if it’s used properly, is the debt consolidation loan. There are many different ways you can work these loans. Some people roll them into a second mortgage, others essentially take large personal loans to wrap all of their other debts into one package.

Most importantly for most Americans, a consolidation loan can be used to roll all of that credit card debt into a loan with considerably lower interest. Credit cards are convenient, but if you don’t pay off your balance every month, you can get slapped with some incredibly high interest rates. Consolidation loans help to lower what you’re paying in interest.

If you think you might want to take out a debt consolidation loan, gather all of your bills and figure out exactly what your outstanding balance is. Then figure out what your monthly payments are, and how long you will need to make those payments. This should give you something to compare with the terms and figures of your consolidation loan.

Talk to several lenders. Don’t apply for the actual loans until you have compared loan rates. Making out several loan applications can actually negatively affect your credit score. Find out what typical loan rates are for people with your credit score. If you don’t know your credit score, you can find out what it is online through Equifax, Experian, or one of the other credit reporting bureaus.

After you have compared the rates of several lending institutions, apply for a consolidation loan with the one which offers you the best rates and terms. Usually this is a simple matter of comparing the numbers, though there may be other factors as well. Ultimately, you should take your loan out with whomever you are most comfortable dealing with.

If you do get a consolidation loan, do yourself a favor: Don’t incur more debts, at least until after you have paid it off. Too many people make the mistake of getting a consolidation loan, then taking the excess money they have and immediately using it to justify borrowing more money. Soon, they are up to their eyeballs in payments again. Wait to borrow more until you pay off what you already owe.

Image by Andres Rueda

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