When you consolidate debt you take several loans and combine them into one loan. Often this loan has a lower interest rate than the credit cards. It can often savings on interest payments, and one set monthly payment to help you get out of debt. On the surface the choice to consolidate debt may look like an easy one to make.
However people often consolidate debt without really looking at what caused their debt to grow to such a large size. Once they have the lower consolidation payment, they continue to spend at the same rate, and quickly add to the credit card balances that they just paid off. Generally within two to three years they have the same amount of credit card debt that they did before they consolidated their debt, plus the consolidation loan.
If you are committed to getting out of debt, and you will close all of your credit cards, except one when you take out the consolidation loan, it may be worth it to save money on the interest rates. However you should make sure that you and your spouse are able to stick to a budget. In fact you should give yourself three to four months of following a budget and committing to that pattern before you take out the loan.
One area that is a good idea to consolidate is student loan debt. You can consolidate these loans when you graduate. The student loan interest rate fluctuates, and you should try to lock in it when it is low. You will have the option to stretch your loan out, which will lower your monthly payment, but increase the amount of the interest you pay over time. If you do take advantage of student consolidation loan, you should still try to pay off your student loan early.
It is important to look at the whole picture when you are trying to manage your debt. Your ultimate goal should be to get out of debt. This means making sacrifices in your spending and savings habits. The option to consolidate debt will not solve all of your debt problems, but if it is handled carefully it may help you to save on interest over time. Only consider this option if you are one hundred percent committed to making lifestyle changes and close your other cards when you take out the loan.
