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Knowing When to Consolidate Debts

Debt consolidation is one of the most common methods consumers use to manage their finances when credit card debt becomes burdensome. Credit cards can be difficult to pay off because they often have very high interest rates as well as a revolving loan term. By consolidating debts, you may be able to dramatically improve your financial situation. However, there are instances when consolidation is not always the best solution. With a closer look at the most ideal times to consolidate debt, you will be able to determine the best course of action to take with your finances.

When You Cannot Pay Your Debts Off Quickly on Your Own

Some people may feel a great deal of stress when they cannot pay off credit card balances within a few months. However, a debt consolidation loan often has a fixed term that extends for many years or longer. If you will be able to pay off your credit card balances in full through your current efforts within the next year or two, it is generally not wise to use a consolidation loan. If you are struggling to make ends meet and are worried about falling behind, however, consolidation may be an ideal solution to consider.

When You Are Sure You Will Not Take on Additional Debt

Consolidation can be a risky prospect in some cases, and the reality is that it has resulted in an even worse financial situation for some people. Through consolidation, all of your credit card debt will be consolidated with a new loan. After these transfers have been completed, you have the ability to charge up your credit cards again. However, this time, you will also have the consolidation loan payment to contend with. The reality is that your debt situation can become much more severe if you charge your cards up again. It is important that you change your spending habits and make an effort not to make additional charges. Some will even close all of their accounts to prevent this from happening.

When You Can Qualify for a Consolidation Loan

Even when you will benefit from consolidation and when you are certain to change your spending habits, debt consolidation may still not be the right move to make. Some people who need to consolidate debts will unfortunately not qualify for the loan they need. You often need to have a good credit rating to qualify for a loan. The most common types of loans used for debt consolidation are home equity loans and unsecured personal loans. You can explore these options today to determine if you can qualify and to get a rate quote. Ensure that the rate and monthly payment will be improved through consolidation if you do qualify.

Credit card consolidation has put some people on a much better financial path, and many have even reached a debt-free status as a result of this effort. If you are considering debt consolidation, carefully think through each of these factors to ensure that consolidation is right for you.