Reduce Your Bills: Debt Consolidation

Outside of your monthly expense and necessity purchases, you probably have a slew of bills that come every month for credit cards, loans, and other debt. Your interest rates might be very high or your monthly payment might be above your means. Dealing with these bills each month can be frustrating and it's hard to keep track of each of them. When you consolidate your debt, you take out one big loan to cover your current debt and any fees associated with early repayment. Your monthly payment is reduced if you're able to get a lower overall interest rate or you agree to a longer term on your loan.

Pay Off Your Bills: Debt Consolidation No-No's

There are a couple of instances when it is not a good idea to consolidate. Do not consolidate your bills if:

You're close to paying off your debt. Suffering through high interest rates will save you more money in the end if you're only a few years from paying off your debt than consolidating and paying more in interest over the years because your term is longer.

You're unsure you can make the monthly payment. If you can't make minimum payments on your bills, debt consolidation might only put your home in jeopardy unless you can get a monthly payment on your new loan that is significantly lower than the current combined total of your bills. Because most debt consolidation loans are in essence home equity loans, meaning the lender secures your loan against your home, your inability to make the monthly payment could cost you your house. When you're talking with your lender be sure to ask if your loan is secure or unsecure. An unsecured loan will usually carry a higher interest rate, but will not require you to turn over the keys to your home the first time you default.

Your interest rates on your current loan are lower. That may seem like a no-brainer, but the lure of taking a high interest rate over a long term and reducing your monthly payments can seem tempting. Your temporary relief from your bills will cost you a lot of money over the long run. Do the math and figure out how much it will cost you in interest to pay off your loan before you sign on the dotted line.

Talk to a few lenders about your bills, debt consolidation, and other options before you decide whether to consolidate. Consolidating might be a great choice if you can find a trustworthy lender who can offer you a good loan package. Remember, you can always take your paperwork home and read it more carefully or have your lawyer read it before you sign. A good lender will not object if you ask to do so. In some cases, credit counseling or learning how to budget on your own might be a better option, but you won't know until you take a look at the interest rates and terms available to you.

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