Consolidating Debt: Make the Right Choice

Transferring credit balances to the wrong lower interest loan can put you in an even worse debt situation than before. By the same token, if you choose the wrong debt consolidation loan, you may cancel out any benefits of consolidating at all! With this in mind, knowing how that you are making the proper decision for your situation is key, since when debt consolidation is done properly, you can save thousands of dollars.

The secret? Look beyond the interest rate and any other variables except total cost. When your payment is lower, this does not necessarily mean that you are saving money – it means you are paying more interest, because you are “stretching out” your debt. Similarly, the lower the percent of the total balance owed that is required as a minimum payment, the longer the debt will last.

Really, when you get right down to it, there is only one way that you can truly save money with a debt consolidation loan: pay off the debt as quickly as possible. In other words, pay as little total interest as possible. If you do consolidate and end up having a lower overall monthly payment, plough that extra cash into paying off the debt. Find a good non-profit debt management program to help you through the process.