Debt Consolidation Strategy

Debt consolidation is one way that you can reduce your interest obligation and lower your monthly payments. High-interest credit card accounts are paid off by one low-interest loan. Interest is reduced due to the loan's lower interest rate, and monthly service charges are combined into one loan service charge. Before you get involved in a debt consolidation agreement, you need to make a financial plan to make the consolidation more successful.

Balances

Before you get into a debt consolidation program, examine your accounts to see if there are any you can pay off with your own resources. Remember that debt consolidation is not the immediate elimination of debt, it merely moves debt to a situation that fits your monthly budget. If you have accounts you can pay off in a matter of months, then it would be better to pay those accounts off rather than finance them for several years as part of your consolidation.

Spending Plan

In most cases, a consumer requires a debt consolidation plan because he spent more than he could afford. Before entering into a debt consolidation plan, review your monthly spending and make changes to avoid the need for another consolidation plan in the future. Resolve to buy more items in cash and use credit accounts with discretion.

Credit

It can be tempting to cut up credit cards and cancel accounts when you consolidate debt, but those old credit accounts are valuable to your credit score. Use your old cards, but only use them for as much as you can afford to pay off each month. Keeping old credit in use will help to strengthen your credit score.

Options

You have options when it comes to choosing a method of debt consolidation. You can finance your consolidation yourself by taking out a personal loan, refinancing your home and using the excess to pay off your debt or by getting a home equity loan or line of credit. If you would rather work with a financial professional to develop your debt consolidation plan, check with the local banks and accountants in your area to see if any offer consolidation services. If you choose to go with a company that specializes in debt consolidation, check with the Better Business Bureau to see if the company has a history of client complaints. You can contact your local Better Business Bureau office by phone, or you can use the Bureau's website.