Taking out loans to pay off credit cards may be a bad idea because you may end up in more debt than before, not to mention the stress. However, you can now use debt consolidation loans to successfully change a bad financial condition. Strategies such as using balance transfer offers to lower credit card interest’s rates as well as using a financial planner to craft budgets may help you achieve this.

Debt consolidation can either be helpful or disastrous depending on how you make use of it. A study by the Association for Financial Counseling and Planning Education conducted on 189 Indiana residents found that more than 87% who used debt consolidation sustained more debt within the year. In fact a quarter of those people said the loan eased their financial burden, interestingly the same number felt they were under more stress.

Debt consolidation also depends on the category of loan used; for instance, unsecured personal loans’ rates are more likely to be lower that credit card rates. All these depend on the credit scores of the lender and borrower as well as their debt-to-income ratios.

Use your home or car as collateral to secure a consolidated debt as these types of loans have lower interests rates. However, the risk with this is that these can be repossesses if you don’t pay in time. Don’t borrow from a retirement account because the balance could be taxed if you lose a job or can’t repay.


Assess your situation without bias

Seek advice from a credit counselor or bankruptcy attorney if your expenditure and other consumer debts are equivalent to half or more of your salary. Chapter 13 of the bankruptcy repayment plan requires you to repay your debt within 5 years, however, you can file for Chapter 7 if you have unmanageable debt.

Stay away from high cost loans

Some loans may seem like they are fair but have longer terms. Calculate the total amount you are repaying and check with credit unions and online for the best lenders around with good rates.

Choose the shortest loan

Go for loans that must be repaid within three years or less , but if you must go for five