When Is a Debt Consolidation Loan Not Appropriate?

Individuals overwhelmed by debt will find they have many options available to them. One option that these people should consider is a debt consolidation loan. However, this solution isn’t right for everyone. When is a debt consolidation loan not appropriate?

Budgeting

Individuals who find it hard to create a budget and stick to it may need to avoid taking out a debt consolidation loan until they learn this valuable skill. The loan often frees up money for a person each month and consistent payments will see the individual’s credit score rising. This should not be an invitation to take out new debt. A person must commit to paying off the debt consolidation loan before any new debt is taken on. Doing so helps to prevent a similar situation in the future.

Savings

A person should also take the time to sit down and make a list of all existing debt and the accompanying interest rate for each debt. In certain cases, it makes more sense to keep the debt the way it is and continue working to pay it off. For example, a person may have five credit cards, two with a zero percent introductory rate. It doesn’t make sense to include those credit cards in a debt consolidation plan because they would then be paying interest on a debt that they weren’t previously. Furthermore, if a credit card has a low rate, the individual doesn’t want to learn that taking out the consolidation loan will actually leave them paying more interest on that particular debt.

Income

A person who has inconsistent income coming in each month may need to consider whether debt consolidation is right for them. The payment must be made on time each month or the lender may demand payment in full. This depends on the terms and conditions of the loan. Be sure to read them carefully so there are no surprises in the future.

Read additional hints and tips to use when determining if debt consolidation is right for you. The more you know before making this decision, the easier it will be to decide which debt management program is best for your situation. For some, it will be a consolidation loan and others will find debt settlement or filing for bankruptcy is the better choice. Only you can make that determination and only when you have all of the facts.