Debt consolidation means rolling up multiple debts into a single lower-interest loan. Here are five tips for successful debt consolidation:

Understand Your Debt

Before consolidating debt, know how much your debt and monthly interest is. The primary goal of debt consolidation is securing a lower interest rate, so it’s easier for you to make your monthly payments, and you can clear your debt faster. Debt consolidation doesn’t reduce the amount of debt you owe, only the interest you owe.

Analyze Your Profile

If you decide to consolidate debt, evaluate your financial profile to determine if you make a good candidate. As you’ll be taking out a new loan, you’ll need a good credit score (680 or more) to get a favorable interest rate.

You must also be financially capable to make the payment per month. Make a realistic budget to know how big of a payment you can afford every month.

Determine Which Type of Debt Consolidation Works Best

There are different ways of consolidating debt. Research your options before finalizing one. Here are some of the main types.

Debt Consolidation Loans: These are installment loans offered by credit unions, banks, and online lenders, and have lower interest rates that may be fixed or variable. However, the repayment period may be longer, which means you may have to pay more interest. Find out how much total interest you’ll pay.

Home Equity Loan or Auto Loan: These are secured loans you can take against the equity you’ve built in your car or home. Although these have lower interest rates than unsecured loans, because your car or home is used as collateral, they may be seized by the lender if you default on your payments.

Taking out a personal loan or borrowing from friends and family, or getting a balance transfer credit card are other ways of consolidating debt.

Shop Around

While looking at different loan offers, check the interest rates, find out if they are fixed or variable, and if there’s a penalty you’ll have to pay if you close the loan early. Also, find out for how long you’ll remain in debt. Never work with a lender who guarantees you a loan, provided that you pay a fee upfront.

Stick to The Plan

After getting a loan, you’ll need to start making a payment every month. Be careful about how much you spend so that you can afford the monthly payments.