The 10 Commandments Of Good Debt Consolidation

1. Thou shalt understand interest rates

There are two common types of interest rates: fixed rates and variable rates. The fixed rates will remain constant throughout the duration of the repayment period, protecting you from unfavorable fluctuations. A variable rate will react to changes in rates and involves additional risk.

2. Thou shalt seek debt counselling

Loans are confusing, and with the amount of different products on the market, finding the right one can be quite tricky. Debt counselors, who are generally registered with the AICCA of the NFCC, will help you with several things: First, they can give you financial planning advice so that you don't fall into debt in the future. Second, they can negotiate with your creditors to make your repayments more comfortable for you, for example by eliminating late fees or lowering your interest rate.

3. Thou shalt go with a debt consolidation firm that has a solid reputation

Just because it's a non-profit organization doesn't mean it will benefit you in particular. Shop around and find the deal that best suits you. After all, if you were browsing around for suits, you wouldn't want to end up with a $400 armani suit that was 6 inches too broad at the shoulders. The same thing goes for loans.

4. Thou shalt read between the lines

Before you sign that thirty-page contract, make sure you've read each and every clause of it. Some lenders will add payment protection insurance that you won't know about but that ends up costing you dearly. Look for hidden costs or charges, and do the math! If you can't figure it out yourself, then ask a debt counsellor to help.

5. Thou shalt think of the future

Put otherwise: Is the deal cost-effective in the long run? Are there early settlement fees associated with your current loans? If your debt consolidation loan's monthly repayment is more expensive than the individual loans, then it's defeated its purpose. Also note that you will be making payments for a longer period of time, which means that ultimately you will pay more in interest. Make sure you follow commandment #4!

6. Thou shalt take thy time

The more you rush into things, the more you might end up losing. It's mathematical.

7. Thou shalt plan, financially

Many people who need debt consolidation might have avoided falling into debt in the first place had they planned their financial affairs better. Even if you're one of those people, it's never too late, and a little budget planning can go a long way.

8. Thou shalt understand that an offer that sounds to be true probably is

There are many things that a company can do to embellish its offer: lower monthly repayments, etc. Understand that all of these things are interconnected: for example, a lower monthly repayment means you'll be in debt for more time. If you can't see a catch, better be safe than sorry: follow commandment #2.

9. Thou shalt become thyne own expert on debt consolidation

This one's easier said than done, but the more you read about debt consolidation, the more you'll begin to realize the tricks various companies will employ to lure you, and the more trivial it will be for you to throw out the bad ones.

And last but not least... 10. Thou shalt never take a loan that is beyond thy means

As common sense dictates, you should always make sure than any loan you take out is affordable for you. Debt counselors can help you with this. Don't be tempted to immediately take up the first good offer that you find!