If you are thinking of taking up one of the many credit card or personal loan offers that you see on the television, in the newspapers or hear on the radio, consider the following: A personal loan that will merge your debts into one convenient monthly or fortnightly payment sounds good and seems to be a great offer.

When we find a special deal or an offer that's 'too good to be true' our natural instinct is to ask 'what's the catch'. However, with consolidation loans people seem to leave their natural instinct at home. Often this is due to the fact that we are blinded by two facts:

1. We look at the loan amount and;

2. The monthly repayment. If these two facts combined are better than what we are currently paying on our loans we automatically believe we are securing a better deal by consolidating our debt.

While these two points are vitally important they are not everything you need to consider when deciding if a consolidation loan is right for you. Don't let the loan company make you think that because you can afford the repayment amount and this amount is less than your current minimum debt payment, that this is all you need to know regarding your consolidation loan.

When you look at paying back your consolidation loan we say to ourselves, one monthly re-payment is better than multiple monthly repayments on multiple debts. But we really need to look at the exercise in its entirety. Breakdown each debt that is going into the consolidation loan. That is, how much is owed, what is the interest rate, what is the minimum re-payment and how long will it take to pay off. Add all your debts together and compare it to your consolidation loan details.

In most cases you may find that you are better off with a consolidation loan however it is worth doing the exercise to fully appreciate how your circumstances are going to change in terms of monthly outgoings towards your debts under a consolidation loan. Once you have come this far, look at the type of interest rate that is been offered, is it a variable rate or a fixed rate? Keep in mind if it is variable and interest rates rise during the term of your consolidation loan, your re-payments will also rise. Always make sure that the interest rate on your new consolidation loan is lower than your current debts. Also look at what happens if you make extra payments towards your consolidation loan. Say you get a pay rise or an unexpected cash bonus and you decide to pay your consolidation loan out quicker, what are the penalties? Many lenders have a fee attached to early pay out of consolidation loans. This is not always a pitiful as some people are happy to pay the loan to the end making the required monthly payment.

When you are considering your consolidation loan look at the 'fee schedule' ( every loan offer should have one ). The fee schedule tells you about all the other costs that may be associated with your consolidation loan. Things like account keeping fees and broker's commission. Every consolidation loan comes with fees and this is not always a bad thing but you should make sure that you consider the fees in your monthly payment. That is, if the account keeping fees are $600 and are calculated separate to your monthly payment and your loan term is 60 month's your monthly payment is really an extra $10.

We highly recommend if you are consolidating store cards and credit cards into one consolidation loan that you cancel those cards when your consolidation loan is approved. Once your consolidation loan is established your store and credit card limits will be most likely restored. DON'T risk temptation by leaving them active with credit available, cancel the cards! By consolidating your debts you may very well have started on the path to be 'debt free'.