Finance Roll

A debt consolidation loan is one that takes your existing credit balances and rolls them into a new loan. Usually, the payment on the debt consolidation loan is considerably less than the total of all the individual payments you have been making. These can sometimes be a good way to regain control of your personal finances, but there are some points you should consider first.

Before you take out a debt consolidation loan, see if there is another way to handle your personal finances. Can you reduce expenses and make larger payments on existing debt? Could you and/or your spouse take a second job for the express purpose of paying down debt and restoring order to your personal finances? Are there other ways to raise cash, such as the sale of a boat that hasn't been in the water for years or a vacation cabin you never use?

You also need to know how much the monthly payment on your debt consolidation loan will be. While it is normally less than your total payments, if it is still out of reach of your personal finance picture, you are not doing yourself any favors by taking one.

If your personal finances can be restored, and debt eliminated, in a relatively short period, you might want to stay with the debts you have. For example, if your financial problems are due to paying for a child's last year of college, you can probably survive without incurring a debt that may have a longer repayment term than you currently have.

You will also have to exercise control over your personal finances if you take a debt consolidation loan. Old habits will have to be changed, or you can quickly wind up in even worse circumstances than you started with. One example is when people take out a debt consolidation loan, pay off their credit cards, and then run their balances up again. Now they not only have the same payments they couldn't afford in the first place, they also have a payment on the debt consolidation loan to deal with. If a problem with your personal finances has been chronic, no matter what you did, you need to be sure that you are willing and able to change your spending habits before you take out a debt consolidation loan. Otherwise, your personal finances will continue to be a shambles and your debt load will keep increasing until there are no options left except bankruptcy.

If you take out a debt consolidation loan, it is a good idea to close as many accounts as you can. Keep one bank card for emergency use only, and close the others. Expect to be deluged by enticing offers from the department stores, who want you to reverse your decision and keep the account open. They may offer you huge discounts on your next purchase if made with their card or several months of no payments and no interest. Stay strong, and follow through on your commitment to regain control of your personal finances.

A debt consolidation loan is not for everyone, or a solution for every situation. But for many people, it is the best way to restore some sense of order to their personal finances. It can also bring peace of mind to others, and that is something that cannot be bought.