Have you ever looked at your debt and wondered how you were going to get it paid off?  If you have, then you probably have also asked yourself if a Debt Consolidation loan is a good idea.  Well, is it?

The answer isn’t a quick yes or no; it really depends on multiple factors and on what your real goals are.

One of the most oblivious reasons for a debt consolidation loan is that you have too much credit card debt.  A condition that is critical (but not always easy to do) for a consolidation loan to work is that you aren’t going to charge your credit cards back up.  There are generally two reasons people max out the cards; the first is that they are “living beyond their means”, in other words they over spend on “non essentials”.  If you are buried in debt for this reason and are able to stop spending and control what you charge (only what you can payoff) then it makes sense to get rid of high interest rate debt and put the repayment on a manageable plan.  When you do this there should be room in your “new” budget to save for those unexpected problems that you would otherwise use your cards for.  If you can do this you are able to “break the cycle” of over use of your credit cards.  If you think there is a probability that you will go back out and “run up the cards again” then don’t go through a debt consolidation loan because you only compound you debt problems.  Continually adding debt is a one way ticket to poor credit scores, higher interest rates and probably bankruptcy.  

The second reason credit cards are run up to their limit generally is because your monthly payments exceed your income.  This can happen for a whole host of reasons and if the reason will go away with a consolidation loan you certainly should explore taking one. Your debt can be from many different sources-not just credit cards-and the interest rate and term of the debt needs to be considered when looking into a consolidation loan.  An in-depth consultation with a financial expert (the credit union staff can help you) is a good place to begin the process.  The analysis should look at the total amount your existing debt will cost you vs the consolidation loan as well as how long it will take to repay.  You also need to consider your “quality of life”; if your debt structure is causing stress or keeping you up at night then you should seriously consider restructuring your payment even if making such a move will cost you more or take more time to payoff.  If you are in this situation you should meet with someone who can give you unbiased, honest advice.

Some other things to keep in mind deal with, what are your personal goals, how much debt do you have, are you pledging collateral, looking to buy your first home, or looking to rebuild your credit score?  A debt consolidation loan can go a long way to improving your quality of life but like most things in life if it is over used it can cause more harm than good.

Do you want to talk about your debt?  Give us a call because as you know,

It’s Only Money

John