It’s become so easy to borrow money that even when you’re struggling to pay off what debts you already have, your bank may offer you more credit. Sometimes the temptation to say “yes, more please” is too high and before you know it you’re over-extended.

Managing your credit cards, personal loans, store cards, car loans and mortgage can be a nightmare especially when all the loans have different conditions and interest rates.

Rolling all of your debts into a single loan can sound like a dream come true … but only if you manage it effectively. The key is to use debt consolidation to break out of the cycle of spending more than you earn. Like anything there are traps for the unwary.

Use the following as a checklist when you decide to consolidate:

Check the interest rate on the new loan

Make sure the new repayments are lower than the total repayments on all of the loans you are consolidating, otherwise you will go backwards.

Watch out for fees and charges

Check to see if there are penalties for paying out your loans early. There also may be establishment or application fees to set up the new loan, so make sure you know what you are paying.

Maintain the repayments

Now that you have your debts all in one place, keep up the same level of repayments (or pay a bit more when you can). If you don’t, you are really just spreading the loan over a longer period and paying more interest in the long term.

Resist temptation to take on new debts

Cutting up your credit cards may be one solution but if you need the convenience of a card, always pay off the full debt each month. The best way to manage this is to set a low limit on your card to use for emergencies only – say $1,000.

Beware of dodgy loan consolidators

If you have a home loan, it may be wiser to arrange your own debt consolidation by talking to your lender.

As with most things, debt consolidation is a case of doing your research to enable you to make an informed decision.

This article contains information that is general in nature. It does not take into account the objectives, financial situation or needs of any particular person. You need to consider your financial situation and needs before making any decisions based on this information.