An Easy Guide to Debt Consolidation

If you are paying a great deal of interest or are struggling with feeling rather payment poor, consolidating your debts is a great choice. To make sure that your debt consolidation is most effective, you will need to do a bit of prep work to get the most efficient use of these funds.

Check Your Credit

If your credit rating is particularly low, carefully review your credit report for errors. For example, you may find a debt still listed that you know you paid off. However, if the loan was set up with your social security number transposed and off by just one number, the debt may linger. Get rid of the errors and check your rating again.

Total Up Your Debt

Before you start looking for a consolidation, set up a spreadsheet that you can use to track all of your debts. You will need to know

• the total owed

• interest rate

• minimum payment amount

• remaining number of payments

Tracking all of these factors will give you many options.

When You're Payment Poor

If you need to free up cash quickly or are just out of money too early in the month, sort the debt from largest to smallest by the monthly payment amount. Consolidate the largest dollar amounts first into a loan that will have a smaller payment. As you enjoy having a bit more money at the end of the month, you can use the remainder to pay down your higher-interest debt.

Tackling the Interest First

If you are struggling under high interest, sort by interest and consolidate as many high-interest debts into your loan as possible, again making sure that the payment will either be equal to or smaller than the current payments. It's possible to also look for a 0% APR credit card loan for a specific term of time. If you have access to one of these loans, sit down and carefully review your available cash to make sure that you can split the total debt by the 0% interest time period and pay off the debt before you hit the end of the offer.

When You Can Get Down to One Loan

If you list all of your debt and find that you can get a loan to cover everything, congratulations! You can easily see the end of the debt tunnel. If this loan is tied to your home, do make sure that your first step after lowering your total monthly debt burden is to create an emergency savings account. Make the minimum payment until you have at least 3 months of savings to cover your house payment just in case something happens. If you have to consolidate your debt into a single loan, make sure you look at asset based lending first, and keep away from payday loans. Nothing makes a financial problem worse than payday loans.

Prepping for a Big Change

Noting the number of payments that remain is important if you are

• looking to downsize and move house

• planning to retire, go part-time, or transition to freelance

• trying to buy a home

If you need to save up for a down payment on a house, changing up your remaining payments can bring those goals closer. Big changes often require focusing on all facets of debt consolidation, from payment size to interest rate to reducing your total debt to boost your credit rating.

Putting a debt consolidation to work will be much easier if you know what you are tackling once you have the cash in hand. Consolidation loans can help many different people meet many different goals. If you know exactly how much you need and why the work of getting the loan will be worth it.