Plan your debt consolidation carefully for real debt reduction

To simplify your debt, debt consolidation loans work. However, for real debt relief, debt consolidation is only the first step. Without changing your spending habits, a consolidation loan is trying to borrow your way away from debt, which makes no sense. Debt consolidation makes sense if, by grouping all individual varieties of debt into one place, the interest rate is lower. But if the only reason for the lower rate of interest is a longer term, you could end up paying more money in the long run.

{|Source for this article: For real debt reduction, plan your debt consolidation carefully by Personal Money Store

Real debt reduction takes planning

It takes careful preparing to set up debt consolidation that saves interest and reduces debt faster. Debt consolidation calculators are available on many web sites for free. A debt consolidation calculator helps you consider all the factors that determine whether it makes sense to consolidate. Experiment with a variety of interest, payment and term situations that could be part of your plan.

Some of the best debt consolidation moves

A variety of debt consolidation opportunities can work for you. Some of the best debt consolidation choices are listed by M.P. Dunleavy at MSN MoneyCentral. Consider a home equity loan when you have equity in yours. The interest paid is tax deductible on a home equity loan, and it carries a fairly low rate of interest within the high single digits. If your car has a secured loan, you can refinance it and use the additional cash to pay off debt. A personel loans can be a good option as the interest rate could be a lot less that what you are paying to the credit card company.

Debt reduction snowball theory

When it comes to debt consolidation, numerous financial advisers believe that for real debt reduction, you have to formulate a plan to pay down each debt separately. The "snowball approach" is financial adviser Dave Ramsey's favorite. Debts are paid off in full one at a time, from the smallest to the largest with the snowball approach. Ramsay says prioritize debts from small to large. Your first priority is paying off the smallest debt. The snowball approach motivates you with success by paying off the easiest debts first. Nevertheless, keep in mind that for the snowball approach to work, it takes many budgeting and saving discipline.

Additional information at these websites

moneycentral.msn.com

daveramsey.com