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Consolidation can be an effective tactic, but to make sure it’s the right choice for you, here are some questions you should ask yourself.

Debt consolidation is the process of taking out a new, more affordable line of credit to pay off your existing credit cards. Usually people consider it when their cards become too expensive to afford.

Applying for a personal loan with a low interest rate is perhaps the most common way to consolidate debt, although you can also transfer your balances to a new credit card with a zero-percent introductory rate (just make sure you pay it off before the promotional rate expires).

Consolidation can be an effective tactic, but to make sure it’s the right choice for you, here are some questions you should ask yourself:

Is It Totally Necessary?

Before you take out another loan, examine your budget. Could you possibly pay off your current balances by cutting unnecessary spending, and freeing up more cash? You may have the ability to get out of debt with some meaningful tweaks to your financial habits.

You can also try negotiating with your creditors about reducing your interest. If you’re in good standing with them, they might work with you.

Does It Reduce Your Overall Payments?

Check that your consolidation loan is cheaper than the total price tag of your current loans. A loan with a high interest rate may wipe out your balances, but if you have to make bigger monthly payments, it’s not worth it.

Does It Simplify Your Financial Life?

Debt consolidation should streamline the management of your loans, and reduce stress. Ideally, you want to pay off all of your lines of credit, not just a portion of them. Your new loan should make your financial life easier, not add another complication.

Is It a Quick Fix or Long-term Solution?

If you want to pay off your maxed-out credit cards so that you can start racking up purchases again, you might want to reconsider your spending habits. Consolidation could still be an option, but you should also speak to a financial coach about making smart choices that will keep you out of debt in the future.

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