Americans are currently drowning in debt. With 1.027 trillion dollars owed in revolving debt, some who are worse off have decided to come out of credit card debt, through debt consolidation. If you have a lot of credit card debt, paying each card off on a monthly basis can be tricky. This is why there are cardholders who just have to carry over balances from one month to the next. Unfortunately, by doing this, they end up paying a lot more in interest payments, than they would if they paid off the full amount every month. Getting out of such debt can become very difficult. That is why debt consolidation is a welcome relief.

Consolidating your debt involves taking out a personal loan that you then use to pay off all your credit card debt. This means that instead of paying several different credit card bills with varying interest percentages, you only make one payment. Usually, such a loan will have a much lower interest rate and this can lead to significant financial savings, particularly so if you can quickly pay off your loan. It is important to note that this strategy may not work for everybody. Here are some advantages to consider.

Pros of Debt Consolidation

These are very straightforward and include the following:

• Instead of multiple bills to pay, you only work with one bill every month.
• You have a fixed payment amount from month to month, which makes budgeting easier.
• It eliminates multiple payments, both electronic and check.
• Ideally, the interest rate should be lower than what you are paying currently on the credit cards.

Prior to settling on a debt consolidation loan, you need to shop around a little bit. These guidelines can help you make the right decision:

1. Shop around. It is wise to speak to a variety of lenders, credit unions and banks to find out what they can offer you in terms of debt consolidation. If you know that you have poor credit scores you should concentrate your search on personal finance lenders.
2. Consider the cost of the loan. This should be the cost of the total life of the loan. Carry out a comparison of the total interest versus your repayment term. Once you have that figure, you can then figure out how fast you need to repay the loan in order to pay less on interest. Of course, the longer the repayment term, the more you pay in the long term, but you tend to feel the relief on the monthly payments.
3. Origination fee. You should expect to pay an origination fee, which tends to be about five percent of your loan amount. These amounts should be paid up front once the loan is approved. It is possible to negotiate this amount, but there will be trade-off. If you pay less on the origination fee, you may see a repayment period that is longer, or and APR that is higher.
4. Prepayment penalties. Be sure to review your loan terms because some of them will penalize you for paying it off ahead of the stipulated schedule. It is a good idea to find out ahead of time if there are prepayment penalties you should know about just in case you get a windfall that allows you to payoff your debt in full.

Once you have reviewed these things, you will be able to tell if debt consolidation is for you. If you decide that it is and you qualify to take out a loan, the funds will be transferred to your account. It is important that you use the money to pay off those credit card balances fully, and not spend it on other things. Once you have done that, you need to make sure that you don’t end up back in the same consumer debt that you were in before. Here are some tips to safeguard yourself in that regard:

1. Cut up your cards if you can’t resist using them. You want to pay off your debt consolidation loan without accruing more credit-card debt, so be sure to cut up your cards and throw them away. If you must, keep one card for emergency use.
2. The card to keep for emergencies should be the one with the lowest interest rate. Be sure to keep the amount you use to below thirty percent of the card limit, and then make sure that you pay it off as soon as possible.
3. Understand that as you cut up your cards, there will be a drop in your credit score because the credit available to you will decrease. If you want to keep your credit scores high, and can resist using your credit cards, you can keep them for that purpose.
4. One of the ways that you can keep your credit scores high is to assign a monthly charge to every card and then put it away. Something like your monthly gym subscription will do great. Then make sure to set up electronic payments at the bank to pay it off without fail. Keeping these accounts active as you pay off the debt consolidation loan will mean that your credit scores get better.
5. Be sure to make timely payments because if you miss a payment or pay late, your credit scores will be affected negatively.
6. If you have an early payment option, use it. One way to do that is to make 13 payments every year instead of 12, or4 payments every quarter instead of 3. You may also consider plugging your tax returns towards loan repayment. If it takes a shorter time to repay your loans, you will be saving quite a bit on interest.

If you are looking to simplify your personal finances, then you should definitely consider debt consolidation. With an 8% rise in credit card debt in 2017 alone, it is clear that more and more people are falling into the debt trap. You don’t have to be among them. Look for excellent debt management solutions to help you get out and stay out. Debt consolidation can help you recover from being overextended on your credit cards, and with proper management, you will be able to see better credit scores over time.