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For many people a consolidation loan is the first strategy they seek when trying to get out of debt.

Debt consolidation loans can be very attractive, since they typically offer lower monthly payments. In addition, most people find that making one monthly payment can give them a better sense of where their money is going, and how much they have left to pay off.

There are a number of ways to consolidate bills. Some methods, such as switching to cheaper credit cards, are easy. Other options are more complicated and require tough trade-offs. For example, if you’re a homeowner, should a homeowner take a home equity loan to pay off credit card debts? How about borrowing against your retirement plan at work? Or should you tap the cash value of an insurance policy?

Before you rush out to obtain a debt consolidation loan or a home equity loan to lower your monthly payments, ask yourself three basic questions:

1. Is getting out of debt the real reason I want a consolidation loan? If you want to lower your monthly payments only to put more cash in your pocket, and you are unwilling to make any changes in your spending habits, you probably are not a good candidate for another loan.

2. If I obtain a new loan, am I willing to stop buying on credit? Again, the goal of a consolidation loan should be to help you reduce your overall debt level. If you are going to use another loan as a cash “windfall” to begin charging new purchases, forget it.

3. Will the new loan reduce my overall debt load? Make sure you carefully consider the cost of a consolidation loan. If the interest rate on the new loan is equal to or higher than the average rate on your current loans, if there are expensive fees or closing costs attached to the loan, or if the monthly payments on the new loan are so low that they stretch the length of your debt by several years, look elsewhere for help.

If you still think you are a good candidate for a consolidation loan, here are some options for you to consider:

Use Plastic

Switching from a high-rate credit card to a low-rate card can easily save the average person at least $100 or more a year in interest, and even more over the life of the loan. If you haven’t already tried to negotiate a lower rate on your credit cards or consolidated your debt onto lower-rate cards, what are you waiting for?

Once you have consolidated to a few cards and carry a reasonable amount of credit card debt, you are likely to be approved for the loans you need.