Before jumping into a debt consolidation program, there are a few things you should consider. The first step before any financial reorganization is to figure out where you are financially. Taking stock of all your debt and all your money coming in will help you better understand if debt consolidation is right for you.
When to Consolidate
If you have a steady cash flow that will cover your payments, it is a good idea to consolidate. This is especially true when you have several debts with payments due at different times of the month. If you do not plan on running any debt up again, consolidation can also be a good choice. If your debt without your house payment is not over 40% of your gross annual income, it can also be a good idea to consolidate your debt.
When you start considering if debt consolidation is right for you, understand your options. First, you can get a debt transfer if your credit is good enough. A zero percent balance transfer can be the best way to get all your debt into one place so you can pay it down. This is an ideal option for those with a credit score of 690 and above. You can also consider a debt consolidation loan. This is more common for those with a lower score, such as 689 or below. These loans have better interest rates for those who have better credit scores.
You can also consider a 401(k) loan or home equity loan to get all your debt into one spot. These loans do have some risk, however. Whether you qualify for these loans will depend on your credit score and the value of your home. Whether these options are right for you will also depend a bit on your age.