To simplify your debt, debt consolidation loans work. Nevertheless, for real debt relief, debt consolidation is only the first step. You have to change your spending habits as well, or you’re simply trying to borrow your way out of debt, which doesn’t make any sense regardless how you check out it. If bundling all your debt into one payment lowers your rate of interest it makes sense. But if a longer term is the only reason the rate of interest is lower, you end up paying more in the end.
Planning can make debt consolidation worthwhile
It takes careful planning to set up debt consolidation that saves interest and reduces debt faster. Debt consolidation calculators are available on many sites for free. A debt consolidation calculator helps you consider all the factors that determine whether it makes sense to consolidate. Experiment with a variety of interest, payment and term situations that could be part of your plan.
Top possibilities for debt consolidation
Some debt consolidation approaches are better than others. M.P. Dunleavy at MSN MoneyCentral reports on some of the best debt consolidation moves. Consider a home equity loan when you have equity in yours. A home equity loan carries a fairly low interest rate, presently in the high single digits, and also the interest you do pay is tax-deductible. If your car has a secured loan, you can refinance it and use the additional cash to pay down debt. A personal loan to pay off credit card debt is a great choice, with less interest than you are paying to the credit card company.
Debt relief can grow like a rolling snowball
Many financial advisers think that you need to plan on keeping debt payments separate for debt reduction. Debt reduction guru Dave Ramsey advocates the "snowball approach". With the snowball approach, debs are paid off one at a time, from the smallest to the largest. Ramsey advocates listing your debts in order. Your first priority is paying off the smallest debt. The snowball approach motivates you with success by paying down the easiest debts first. But it takes a lot of financial discipline, budgeting and saving for the snowball approach to work.
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