Debt consolidation is becoming more popular these days but is it worth it to consolidate your debt? Basically speaking, debt consolidation is the process of making your life easier by converting multiple high-interest debts into a single lower-interest debt. It may not be for everyone but it is best to inform yourself about debt consolidation considerations before making a decision whether you will consolidate debts or not.
When to Consolidate Debt
Certain scenarios are better suited for debt consolidation than others. You can consider consolidating debt if the following situations apply to you:
- You have income that is at least twice your debt. This amount is small enough to be perfectly manageable with debt consolidation.
- You have a reliable and enough cash flow to cover the expenses of a new loan. You can afford fees.
- Your credit is good. If your credit score is more than 650 then you can qualify for a 0% introductory period as well as lower over-all interest.
- You understand that you must control your spending and that debt consolidation is just a tool to help you fix your finances. You know that you must take actions to alter your spending habits.
When to Not Consolidate Debt
Not everyone can benefit from debt consolidation. It is recommended to look for other options if any of the following situations apply to you:
- You have too much debt and it is more than half of your income. Trying to get another debt when things are this bad can make your situation even worse.
- You have a poor credit score. Having a bad credit score can make it near impossible for you to qualify for debt consolidation. If you qualify, you might be tied up with exorbitant fees and interest rate.
- You are in the midst of financial hardship such as a divorce, going bankrupt, or losing your job. Getting a debt consolidation loan under these circumstances may hurt your finances even more.
Getting a loan to consolidate debt may be a good idea if you qualify for the loan without having to pay large fees. This means having good cash flow, a desirable debt-to-income ratio, and a certain length of credit history. If the interest rates are something that you can work with and manage to pay given your current income, then it is even better. You also need to take a look at the loan terms to make sure that it is not overly long and to know what fees you are expected to pay so you can weigh if the loan is a good decision over the long run.