When you have more than one source of credit and a loan or two in your name, it’s easy to feel as if your payments are getting out of control. Debt consolidation can offer a handle on finances and relief from stress. While that’s often the case, there is more to learn and understand about this type of loan.

Before you decide to take on a consolidation loan, check the details of your current credit report. In fact, if you haven’t taken a look in the last 12 months, you should check this out regardless of whether or not you’re considering debt consolidation. A credit report will list all your outstanding debts and help you understand what type of offers are available to you. The higher your credit score, the better the financing deals you’ll find.

When to Consolidate

When you’re comparing a consolidation loan to your current situation, the variables to weigh include the size of your monthly payment, the interest rate, the loan term and the conditions of the loan. Generally, the most important factor to consider is whether you’ll save money or pay more by consolidating. Calculate what you’ll spend to pay off your debts as they stand.

To calculate, multiply the number of payments remaining on each debt by the size of the payment. Total your results for an idea of their overall cost. You can use this figure to compare with a consolidation loan. You can also use an online calculator designed for this loan.

See if your lender you’re considering charges an origination fee. Origination fees are rolled into your APR and can cost you an extra 1 percent to 6 percent. If your credit score isn’t great, adding a cosigner to your loan can dramatically lower your interest rate.

A good case for consolidation is if the total amount required to pay off the consolidation loan is significantly lower than the amount necessary to pay off your debts. Such a situation isn’t uncommon.