How to Consolidate Debt
When credit card and loan debt gets out of hand, many consumers look for ways to consolidate. When you consolidate debt, you combine all of the debt you have incurred and roll it into one large loan, making payments on just that loan every month. Consumers choose consolidate debt when they can no longer handle their monthly payments for everything they owe, to save money on interest rates or to clear their credit. Keep in mind that there are some things you should consider before you make this financial decision.
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Instructions
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Tally up your total debt before applying. Contact every company you have an open credit line with -- such as your student loans, car loan, mortgage and credit cards -- and determine the exact amount you owe.
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Visit your bank first. Most banks have some type of consolidation program in place. If you're a long-standing customer in good status, you may be in a position to negotiate better terms, such as a lower interest rate or extended payments. Never be afraid to ask, because the worst the bank can do is say no.
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Contact other trusted lenders you have worked with in the past to compare rates with your bank's. Always contact lenders directly, or visit a local branch. Be sure to have your account statements handy and know the final number you need a loan for when you call or visit.
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Look into online lenders for debt consolidation. Several lenders allow you to calculate payments online and begin the application process. The loan marketplace LendingTree, lets you request quotes, compare interest rates and terms and apply for loans to consolidate debt from several lenders right through its website.
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Make it clear that you want to apply for a personal loan to consolidate debt, not a home equity loan. Many lenders will try to offer home equity loans as an option to consolidate debt, because the credit line is secured against your house. This means that if you default on payments, you could lose your house. Unless this is your only option due to extremely poor credit, never accept a home equity loan as a way to consolidate debt.
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Tips & Warnings
Understand that with the debt consolidation process, most lenders will require you to close every open credit line -- credit cards included -- that the consolidation loan pays off. This will effectively prevent you from racking up even more debt.
If you have too much debt and a poor credit score, you may not won't qualify for the low interest rates advertised. Pay close attention to the interest rate your lender is offering, and don't consolidate lower-interest debts with a higher-interest loan.
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