Debt Consolidation Tips

Debt consolidation is a way of taking a variety of debts and bundling them into a single debt with the aim of making them easier to pay off and more cost effective from a repayment perspective. Before you go down this well-travelled debt management route, however, it is worth thinking about certain issues. These debt consolidation tips should give you some guidance:

• Think about the solution you need: There are various types of debt consolidation options available to you so make sure to choose the right one. A homeowner, for example, may be able to use a remortgage/equity release or secured loan option here. But, if things go wrong with your repayments you may put your home on the line. Or, if you only have credit card debts you may opt for a balance transfer solution instead where you move all your credit card borrowings on to a new card. In this instance you will usually be given reduced or zero interest rates for a specified period. This is fine if you pay back what you owe in this time but if you don't you could be paying even higher interest when the deal is done. So, it is vital to think about the future as well as the present here and how you will manage the repayment of your deal.


• Work out your budget: A Debt consolidation package will only work if you can afford to make your repayments every month. Don't be tempted to take on a loan so big that you cannot pay it back every month. This is not the point of debt consolidation and you'll simply get into more financial trouble. Go through your finances and work out a budget and try and leave some spare cash for emergencies so that you are comfortable financially.


• Look for the lowest rates: Your aim here should be to find the lowest possible interest rates to make sure that you pay back as little as possible with affordable monthly repayments. This also may not be the time in your life when you can gamble with variable interest rates which may see your payments go up as well as down. A fixed rate option where your repayments stay the same may be a better choice.


• Read the small print: Don't take out any debt consolidation package without reading the small print on its terms and conditions. Some loans, for example, will allow you to make overpayments or to pay off your loan early without penalty. Others will charge you extra or inflict penalty clauses.


• Stop spending: Finding the right debt consolidation solution can be a massive relief. You may find that your debt repayments go down considerably and you have more free cash to play with every month. So, it can be tempting to carry on spending and to forget that you still owe the money you've consolidated. Try not to get into further trouble and modify your spending habits where you can. Many people, for example, will cut up their credit cards at this stage or only use them for emergency spending where they know that they can pay them off in full every month.

A debt consolidation solution can be a great way of minimising your debt repayments and gaining back control of your finances. But, to make it work for you in the right way make sure to find the right deal and manage your finances sensibly to make it happen.