How to Consolidate Loans

Consolidating a loan means combining all your high interest rate loans and credit card debt into a single low-interest rate loan.
These steps allow you to combine all your debts into one loan, so you can acquire some financial flexibility with a lower monthly payment.

Difficulty: Moderately Challenging

Instructions

1. Stop using your credit cards while shopping for a consolidation loan. You want to keep your credit history "clean" without a lot of activity that can affect your credit report.

2. Contact your credit card companies and mortgage company and tell them you want to consolidate your high interest and credit card loans. Ask them if they have a debt consolidation plan. Shop around, checking for loan fees until you find the best deal.

3. Decide on the financial company you want to use for your consolidation loan. Start the application process. Pick your highest credit card and personal loans to consolidate. The financial company will help you choose which credit cards and loans to pay off.

4. Pay attention to how much you are paying for the consolidation loan. This includes interest, upfront and recurring fee, points (secure loans), closing costs and tax implications. There are banks that have very little, if no costs, to getting the loan. It depends on your credit report.

5. Find out the total cost of the loan. To calculate, multiply the monthly payment by the number of months on the loan, and then add the fees or points. See if the lender's quote of cost is the same as your figures. If not, investigate the difference.

6. Read the loan contract thoroughly, word for word. Make sure the loan rate is what you had agreed upon during the application process. If it is not, stop and investigate. You can always pull out of the loan. If all looks good, sign the loan papers.

Tips & Warnings

• TV commercials or bulk mail from loan companies offer help to consolidate your credit cards by cutting your payments in half, get out of debt fast or lowering your interest rates. This all may sound too good to be true. In most cases it is. Do your research and stick with reputable banks or financial institutions.

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