People’s perception of and tolerance for debt varies considerably, so, before opting for debt consolidation you need to take into account the kind and amount of debt you have and also the reasons you got yourself into this position in the first place.

Amount of debt

Debit consolidation is the most appropriate solution for people who have a significant amount of debt and have been unable to devise any means of paying it off without resorting to further loans. If your problem is that you have a large number of creditors and have difficulty meeting the monthly payments for all, but the overall amount owing is not mind-boggling, there are other methods, such as snowballing, or renegotiating the terms of your original loans, which you can use to free yourself from debt. If this is your situation it would be a good idea to contact a financial advisor for advice before making any decision about consolidating your debt.

Type of debt

Credit card debt is probably the most common form of debt which would benefit from debt consolidation. The high interest rates combined with the temptation to pay only the minimum amount each month means that the limit, which is often unreasonably high, is quickly reached. Budget options on your credit card only exacerbate the problem. Very often a second credit card is used to finance the first and the debt quickly spins out of control.

Know thyself

A more important consideration than the kind or amount of debt you have accumulated is your honest assessment of your own attitude towards debt. If there is any chance that you might not be able to repay the new loan taken out to consolidate your individual debts then this option is not for you. Remember that any substantial amount borrowed would have to be in the form of a secured loan. If you neglect to pay your credit card on time you will be given a bad credit rating and will no longer be able to use the card. However, if you neglect to pay a secured loan you stand to lose whatever you put up as collateral – usually your home.

With this risk in mind, consider whether you will be able to resist using your credit cards once their balances have been reduced to nil. With more money left over at the end of every month it is very easy to fall back into the spending habits which got you into debt in the first place. And if you start accumulating debt again you will end up having to pay off the consolidation loan as well as your new debts and you will not have the option of taking out another consolidation loan if you are already mortgaged to the hilt.

It is important to realize that debt consolidation is a drastic step to take and should therefore not be entered into lightly. You need to weigh the pros and cons carefully before taking on an additional loan and you need to be very sure that the underlying problems which caused the initial debt to spiral out of control have been resolved.