Performing Loan Consolidation The Right Way

If you’ve already done your preliminary research and have a pretty firm idea that you’re going to go ahead with some form of debt or loan consolidation, you’ll need to proceed carefully to make sure you end up placing yourself in the most advantageous position.

You’ll need to look at the different methods for consolidating. You’ll also want to decide how your debt will be consolidated. On top of that, there are plenty of pitfalls ready to put the unwary borrower at risk, so you’ll have to take care to stay mindful of those as well.

Here are just a few of the things you should keep in mind to ensure that when it’s time for you to consolidate your debt, you do it in a way that pays off.

Which Consolidation Method To Choose?

You already understand the basic principles of what debt consolidation is, but do you understand there are different ways to go about it? Depending on your circumstances, you may have more or fewer options available, but the ones most people should keep in mind are balance transfers, home-equity loans, and personal loans.

The balance transfer is a process by which you transfer the balance of your debt from one (or multiple) credit cards to another card that offers more favorable terms. The special rate offered with a new card can sometimes reach as low as zero percent for some time, so it’s a good option for those looking to knock debt out quickly and without the burden of hefty interest charges.

The drawback, though, is that if you already have poor credit, you might not be able to get a transfer offer that’s worth your time. Furthermore, you might not be able to swing the payments consistently, especially if you don’t correct your spending habits. If you aren’t able to do so before the interest on your transfer offer changes, you might be looking at an increased amount owed in the long run.

If you have equity built up in your home, you can borrow against that to cover your debts. The obvious drawback is that you’re putting your home on the line, and if you continue to spend too much, you’ll end up without it. On the flip side, though, you can generally get much lower rates with a home equity loan (provided you go fixed rate and don’t chance a variable rate). Combining that with a reduced payment term can help get your debt paid down much faster.

Finally, the personal debt consolidation loan is one that is most commonly offered to individuals through various agencies and services, and can pay off big if you do it right. Granted, you might need to meet certain requirements to qualify for some loans, but whether you go through your bank, credit union, or some other lender, there’s a strategy to debt consolidation loans that will help you maximize their potential.

The Key To Debt Consolidation Loans

Is knowing how to consolidate your debts. Once you’ve got your loan, you’ll need to decide which of your bills it will be applied to first if this choice is not one left up to your lender. If you have the option, you should go with the highest-interest debt first more often than not, as it will help trigger a waterfall payment process which will continue until your debts are paid off in full.

The only time where you might not pay off the higher interest debt first is if one of your lower interest debts has become particularly annoying or stressful. In those cases, you’ll want to tackle the niggling debt first to achieve peace of mind.

Don’t Forget About The Pitfalls

There are plenty of rookie mistakes you should keep from falling victim to, chief of which is just consolidating for consolidation sake. You might truly need to reduce your creditors if multiple payment dates are throwing you off. If that’s not the case, though, you might be better off just paying more on your current debts and altering your spending habits.

Beyond that, you should be aware of how debt consolidation can, in some cases, actually work against you by extending your loan term, which will result in you paying more money in the long run. Debt consolidation can have an effect on your credit score, so be careful to keep an eye out for that.

Furthermore, you might, if you’re seeking a secured loan, be putting some of your material possessions at risk. Make sure you’re absolutely ready to hand the responsibility before moving forward with any kind of debt consolidation to save yourself the headaches.

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Written By
Sydney White is a Texas-born stay at home mom who enjoys spending time with her family, bargain hunting and, of course, writing. She is currently the editor-in-chief of

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