How Can I Consolidate My Debts?

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Consolidating debts can be done by financing a second mortgage or by taking out a single large loan to pay off all of the smaller loans. Consolidate debt for a more organized financial plan with information from a portfolio manager in this free video on finance.

Part of the Video Series: Credits, Stocks & Pension
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Video Transcript

Have you read in the newspaper or financial documents about loan consolidation? Hi, this is Roger Groh at Groh Asset Management, and we're here today to talk about what it is and how you can do it. Well, the whole idea about loan consolidation is to get you to shift your borrowings from one group to another. Several types of loan consolidation are advertised. One is to consolidate through a second mortgage. That is you borrow money from your home or perhaps your company, take that, and pay off all of the other debts or a portion of them that you have. The idea in that situation, especially if it's a home loan, is the interest that you're now paying on the larger home loan is deductible, where the interest that you paid on, say, your credit cards was not deductible. Another type of loan consolidation that goes on is where you take several smaller loans, take out one big one, use the one big one to pay off the smaller ones, and it's all about paying less interest after tax. Are...is that actually deductible in that situation? No, but generally, the bigger the loan, the lower the rate. And it may be to your advantage to do that. How can you go and figure out if consolidating debt is worth your while? Well, if you contact your local bank or brokerage firm or go online, there are software programs which will help you add up the debt that you're paying today compared to what you could pay in a consolidated debt. They will show you pre-tax income and you'll have to figure out the after-tax effect. But nonetheless, it's a convenient way to list everything you owe today to figure out exactly what you're paying in interest and what you might pay in interest elsewhere. Are they a good move? In some cases, they are. I'm Roger Groh of Groh Asset Management, and thank you very much for spending time with me.

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