Most Americans will receive an avalanche of offers regarding mortgage refinancing, equity loans, and low-interest credit cards. Many of these offers encourage you to transfer your existing balances to a new lender. While this may sound attractive, especially if they are offering an appealing initial interest rate, it is important you consider all the facts before committing yourself to debt consolidation.

Debt Management

Transferring all your outstanding balances to a new lender will not reduce the amount of debt you owe. Many people confuse debt management with debt elimination, believing that changing to a lender with a lower interest rate will reduce their outstanding amount. This is not the case, and while a lower interest rate will slow down how fast your debt increases, you will still need to pay off the loan in full.

Credit Cards

Credit card debt is the most common type of debt associated with consolidation. Many people run up high credit card debt because they use their card for lots of little everyday purchases. Paying down your credit cards should be your top priority. Ensure you pay more than your minimum payment each month, even it is only a small amount. Interest rates on credit cards are usually significantly higher than any other type of loan.

Real Estate Alternatives

Review all the separate interest rates of your existing debts. If you find that the interest rate on a home equity loan is less than the rates on your combined debts using that line of credit will definitely save you money. You will need to evaluate your borrowing capacity for a home equity loan or mortgage. Choosing to borrow using a shorter-term equity loan will lower your interest rate. However, most equity loans work on variable interest rates. If your combined debt has a high interest rate, refinancing your unsecured debt through a fixed-rate mortgage may achieve lower overall costs.

Be Cautious

It is important you educate yourself on the different loans available to you, as well as the different interest rates. You should be sensible and only borrow the amount you need to clear your debts. If you feel your borrowing is too high you should take urgent steps to reduce it. For every dollar you reduce your debt, the less interest you are paying.

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