Brad, 37 was a successful computer programmer for over a decade. But when his company outsourced his work to India, he found himself unemployed. He never thought that he would lose his job and whilst he is looking for a replacement career, he has taken up a position in a local supermarket to tide him over. With reduced income, Brad still has the same amount of debt to pay, and these debts wrack up to over a thousand dollars in payments a month. Brad now has to consider adding a consolidation loan to his debt portfolio.

Where did Brad wrack up his debt?

• His mortgage
• A 2nd mortgage on his holiday apartment in Florida
• An car loan to purchase his new car
• Retail store cards
• Credit Cards

To name but a few!

Close friends have mentioned that he should consider a debt consolidation loan in the meantime to reduce his monthly outgoings. A consolidation loan will enable him to pay off all of his unsecured loans such as credit cards and transfer them into one monthly loan with one monthly payment. But are there any hazards that Brad should look out for when choosing a consolidation loan?

Top 4 Tips for Brad - taking out a consolidation loan

1. Shop around for the best deal for you in terms of the consolidation loan interest rate, term of the loan and any attached fees. Your aim should be to get as short a term as possible to pay off the loan as quickly as you can. You should however make sure that the repayments are affordable.
   
2. If you see companies tempting you with low interest rates for their consolidation loan, check your credit score. If you have a less than perfect rating they will probably charge you a higher interest rate than advertised. Ask them to be honest about what interest rate they will charge you and what fees they charge too. You may be surprised how much the fees mount up.
   
3. Only apply for one loan. Every time you apply for a loan this affects your credit score and as you are taking out a consolidation loan to avoid bad credit then this is the last thing you want. If you have done your homework then this is all you should need to do anyway!
   
4. A consolidation loan is just like a home equity loan and will be secured using your home or any other large ticket item you have. 9 out of 10 times this will be your home and if you are unable to keep up your repayments they have the right to take your home.

Don't just look for a quick fix. Be serious about debt consolidation. If you are going to use such a loan to pay off bank and retail credit cards or a car loan then don't build up your balances on them again or that defeats the objective.