Should you consolidate your bebts?

If you, like many Americans, are constantly stressed out due to an overwhelming debt load, you're probably wondering if you should consolidate your debts. The answer is maybe.

First of all, you need to ask yourself a few basic questions:

1. If you consolidate your debts will you have the discipline to use the money saved each month to help pay off the new loan?

Many people take out a debt consolidation loan only to spend the money saved on frivolous items. Others even end up borrowing again. In neither of these cases were their problems solved by consolidating their debts.

2. Will the debt consolidation process actually put you in the position of having to stay in debt for two or three times as long as it will take to pay off your current debts?

If so, you may be better off if you simply get a second job (or a higher paying one) to help pay off your bills. Unless there is simply no other alternative, it makes little sense to trade in several small debts that can be paid off in three years for one larger debt that you'll be paying on for ten years!

3. Do you have assets that you can sell to pay off one or more of your bills? Selling a rarely used item such as a boat or other luxury item might make more sense than trying to consolidate your debts.

4. Do you have cash in a savings account that you can use to pay off a couple of high interest accounts? The best way to "save"" or "invest" for your future is to eliminate those 20% interest credit card debts, and it makes a lot more sense than consolidating your debts!

If you do decide that your only realistic option is to consolidate your debts, here are a few tips:

• Shop around for the absolute best deal for your debt consolidation loan. Just one percent less in interest can make a huge difference on a large multi-year loan.

• Don't automatically choose the longest repayment term in an attempt to minimize your monthly payments. You can save thousands in interest charges by choosing a shorter repayment term.

  Better still, by paying close to the maximum amount you can handle you'll be less likely to put yourself in the position of having to consolidate your debts again in the future.

• After taking out a debt consolidation loan and paying off the rest of your debts, pay every penny of the monthly savings towards the balance of the new loan. Your overriding goal should be to become debt-free as soon as possible.

• Control the urge to go deeper into debt again. If you find yourself wanting to borrow for something else, remind yourself how it felt being up against the wall financially before you decided that you needed to consolidate your debts.

  A little discipline will go along way towards helping you achieve your goal of a happy and successful future. It will also help you avoid having to consolidate your debts again and again.