How to Consolidate Debts

Though not an ideal solution, debt consolidation can provide some immediate relief from high-interest loans and debts. Choose consolidation loans carefully, and consult professionals when necessary.

Difficulty:

Moderately Easy

Instructions

Things You'll Need

• Financial Calculator
• Credit Counseling Services
• Debt-consolidation Loans
• Paper And Pencils
• Financial Advisers

1. List your debts on paper. Include credit cards, mortgages, car loans and other personal debts.

2. Write down the balance, interest rate and monthly payment for each debt.

3. Determine how much you will pay for each debt at the completion of the loan. For instance, you may pay $40,000 for your car at the end of 15 years, or you may pay $15,000 for items on a credit card if you pay the minimum for 30 years. Consult a financial adviser if necessary.

4. Consider getting a debt consolidation loan as a second mortgage. This will give you some immediate debt relief, but loan fees will be tacked on. Choose a reputable company with reasonable rates.

5. Think about refinancing your original mortgage. Be aware of how much (if any) equity will be left in your home. Will this thwart your plans for the future?

6. Consider transferring credit card balances to one card. Check the maximums on your cards, and choose one with a low APR. Make sure the APR is not higher for balance transfers.

7. Consider borrowing money from a trusted family member. Pay off your debts, and pay the family member a predetermined amount faithfully each month. Determine what interest will be paid, and put the terms of the loan in writing.

8. Consider contacting a nonprofit service like American Consumer Credit Counseling. It can negotiate to lower your payments and arrange for you to pay your bills by writing just one check to the agency each month.

Tips & Warnings

• As you investigate your options, look at the final numbers. Is your new loan going to cost you more in the long run? If so, you may want to stick it out with your existing loans, even if payments are higher.

• Determining the merits of various loan programs requires some lengthy number crunching. If this is not your strength, enlist the help of a skilled friend or financial adviser.

• Save interest by paying more than your monthly payments on a regular basis. This cuts down the life of your loan considerably.

• The interest on most loans secured by real property is tax deductible.

• Avoid adding debt to debt. You might be offered a loan of $50,000 when you only need $20,000, and taking the extra money will just compound the problem.