You may have seen it on television and heard it on radio — people who are out of money have rolled all their debts, including credit card debts, into one, have gotten interest payments reduced, and apparently have restored some order into their finances. The loan packages that make these possible are called debt consolidation loans and they do provide some manoeuvring room if your loans are no longer controllable, and you need to rein them in.

Debt consolidation loans may seem to provide an easy solution to replace several financial obligations - store and credit card debts, car and home loans, etc. - with a single payment on an easy schedule. But keep in mind that there are risks involved in taking out debt consolidation loans. You are simply converting several short term credit cards debts into one longer one.

Your Consolidation Choices
You have two options in getting debt consolidation loans: personal loans and home loans. If you are keen on personal loans, you may want to explore possibilities with your existing lender first. A thorough househoild budget and repayment plan may be required. This way, you have better chances of convincing your lender to provide the debt consolidation loans you need.

If you have built up sufficient equity in your home, you may want to choose the home loan option. In this instance you can access some of the equity you hold in your home at a lower interest rate than your existing debts and use that to pay off high interest credit cards. By tapping your home equity, you gain a longer period within which to pay off other debts — if need be, for a term as long as your home loan. The result: lower monthly repayments and an easier cash flow.

The Risks
You can massively reduce the total amount of interest yoy pay by paying above the minimum repayments each month. Getting the loan itself is not cheap as there are application fees and other charges that lenders will levy on debt consolidation loans.

If you are not financially secure then you could be putting yourself at further risk using your home equity. You would not want to lose your home, so make sure to stick very strictly to your repayment scheme.

You need to realize that your spending habits got you into this trouble and history will repeat itself unless you change. For example, debt consolidation loans might allow you to pay off credit card debt on three credit cards amounting to $10,000 — which helps you because of the reduced interest burden. But you now have three credit cards with available credit limits you can access in full. It’s very easy to be tempted. You might forget that you still have a $10,000 debt to repay.

Debt consolidation loans are useful only if you resolve to clear this debt as quickly as you can and to avoid racking up more new credit card debt until everything has been paid off. One of the easiest ways to reduce the urge to use your credit cards is to cancel all but one of your credit cards. For the remaining one, arrange to have the credit limit lowered to a level you are sure you can pay.

Take stock and create a budget plan that takes into account all your monthly income and outgoings. You need to cut the fat from your budget, doing away with expenses that are not required and refocus that money on making loan repayments above and beyond the minimum balance required. Debt consolidation loans won’t provide a solution in themselves, you need will power and discipline.

Article by Richard Greenwood of compareyourbank.com.au which allows consumers to compare personal loans online.

Debt Consolidation Loans