For some, consolidating debt can mean the beginning of the end. When done properly, consolidation brings a smaller monthly payment requirement, and a quicker debt payoff date. However, some consolidation loans could cause more problems than you already have. Take the necessary precautions to avoid pitfalls and consolidate your debt the right way.

Find the Right Loan

All consolidation loans are not equal. Do your homework before applying for a loan. Make sure that your lender will not incur any early payoff penalties should you choose to eliminate your debt before the loan maturation date. Additionally, make sure the interest rate on your new consolidation loan is less than the interest rates and annual fees charged on your current credit card. Avoid the temptation to extend the loan over a period of more than five years. While the idea of a lower monthly payment obligation sounds enticing, your debts will ultimately stay with you for much longer than they have to, and financial freedom will take longer to attain.

Apply for a Consolidation Loan

Before you can get a consolidation loan, you must meet your lending institution’s requirements. Most banks prefer to lend to customers with a good credit history and record of making timely payments. Be prepared to supply some form of collateral, as most banks raise interest rates for unsecured consolidation loans. Some banks may not approve a loan for the entire sum of your debt, so take what you can get. Always use the money to pay down loans with the highest interest rates first

Stop Spending

Obtaining a consolidation loan can cause more problems than good for some debt-holders unless they change old habits. Holding a cheque for a large sum of money can come with the temptation to spend the cash on something other than your debt. Be sure to pay every penny to your debt as quickly as possible. Continue to make large payments toward your loan to pay it down as quickly as possible. Most importantly, stop charging additional debts to your now paid-off credit cards.