When working toward getting some financial relief many people to turn to a loan to either extend the payment making it less each month or to consolidate the balance of the loan in order to get a better interest rate.

To even be considered for loans, a few basic criteria must be met:

First, even if debt is high, the basic credit record should be good, with on-time payments, no missed payments and some available credit (which shows lenders some responsibility for the debt load).

Second, your employment history should be substantial and consistent and you should have a solid housing history. If that is a rental history, it should be clear of non-payments and late payments and if a mortgage, it should have a clear history of on-time payments and no missed payments.

Third, income is always considered critically important. It should be more than adequate to cover the new loan amount and still keep your overall debt to income ratio below 30%.

Finally, your credit score should be good. 300 is the lowest credit score awarded, while 850 is the highest. Ideally, your credit score will be at least 600 in order to qualify for loans with the best rates and terms. Some lenders will provide loans to people with credit scores in the 500s, but it is rare and the interest might be prohibitively high.

There are several different types of loans which are discussed below:

Debt Consolidation Loans

These loans are usually offered by a lender for the express purpose of paying off credit card and other debts. The consolidation company might pay the lenders directly while the borrower pays one payment each month to the loan company. Often the one payment will be lower than the sum of the payments before the debts were paid off.

Be wary of these loans - just because the terms (interest rate, length of payback) of the loan have changed the actual amount owed did not. One of the most common pitfalls of the debt consolidation loan is accruing additional debt once there is some room back in the budget. Stay away from this type of loan except as a last resort to avoid bankruptcy.

Home Equity Loans

These loans are just as the name implies - they are a loan against the equity in your home. Although many people use these loans to pay off debt, remember that you are rolling a short term unsecured loan into a long term secured loan. The interest rate of the loan may be better but now it is locked into whatever the term of your home loan (typically 30 years).

Often borrowers will use the home equity loan to pay off debt and make home improvements, but in general as with the debt consolidation loans it is better to avoid these types of loans unless absolutely necessary as the terms of the debt repayment are typically very long and a default on the loan will mean your house it at risk since these loans are secured by the equity in your home.

Personal Loans

These are similar to debt consolidation loans save for the fact that the lender (usually a bank) pays the borrower directly who then uses the money to purchase items or pay off debt. The danger here is the money could be used for anything (much like a credit card) and the interest rate on personal loans are typically pretty high, depending on the quality of the borrower's credit. These loans should not be used to buy disposable goods or entertainment items and should be avoided at all costs.

Smart money management is making wise decisions for a long term strategy of debt reduction. Using loans to accomplish this goal should be carefully planned prior to making the decision to take out additional debt in the form of loans.

Keep in mind additional fees and costs associated with many loans negate the interest or money saved and the new loan may be more than the original amount owed.