This How to Consolidate Debt on Your Own tutorial will provide step-by-step instructions on how to begin debt consolidation. Debt consolidation can be an excellent way to reduce the amount of interest you are paying each month with credit cards, which can lead to becoming debt-free sooner. Consolidating your debt also has the advantage of simplifying your payments, since you will not have to juggle as many creditors each month. While there are many organizations that specialize in performing debt consolidation, there are also many risks to having someone else do this for you, mainly around being taken advantage of http://www.thesimpledollar.com/2009/01/08/debt-reduction-and-debt-elimination-programs-whats-the-catch/. And so, learning how to consolidate debt on your own, when done right, is the safest option, since you are in complete control.

Before moving ahead with consolidating your debt, it is vital that you get your spending under control. While there are many long-winded and complex theories on how to manage your finances, the most important thing by far is that you consistently spend less than you earnhttp://www.thesimpledollar.com/2009/06/19/rule-1-spend-less-than-you-earn/. Obviously, because you are in debt, you have been spending more than you earn at least some of the time, and unless you change this, no amount of debt consolidation (or anything else, for that matter) will help to reduce or eliminate your debt http://www.daveramsey.com/article/the-truth-about-debt-consolidation/100347/. In fact, if through debt consolidation you get access to more credit than you had before, consolidation can actually make things worse, since you may end up with a larger debt load than you had previously.

The content in this page is not a substitute for professional financial advice. Please contact your financial adviser before using the information presented here.

Until you know exactly how much you owe to which creditors, it does not make sense to proceed with debt consolidation. This is not difficult, but requires that you put in enough time to be sure that you are 100% accurate and complete in terms of your debt information. The easiest way to do this is to gather the most recent statement from each creditor into one place, and then make a list of how much you owe to each with the associated interest rate. Be sure to include credit cards, car loans, student loans, your mortgage, lines of credit, personal loans, and any other types of debt you may have http://www.thesimpledollar.com/2008/04/04/personal-finance-101-comparing-debts-and-developing-a-debt-repayment-plan/. Don't leave anything out.

Next, order the list from highest to lowest interest rate. This is important, since the loans with the highest interest rates are the ones you will want to focus on as the highest priority, in terms of consolidation. Personal loans should be listed as having 0% interest, unless the person you have borrowed from is charging you interest.

Now that you know what you owe to whom, and how much interest you are paying, it is time to come up with a plan for consolidation. Quite simply, consolidation means that you want to find a way to reduce the number of loans you have. This could mean that you end up with just one big loan, or perhaps several smaller loans, but still less than you have today. Regardless of how many loans you end up with, the key is that you must be paying less interest on the consolidated loan than you were prior to consolidation; otherwise, while you may have less to keep track of, you are really no further ahead in terms of paying off your debt.

There are several possible ways to consolidate your debt http://moneycentral.msn.com/content/Savinganddebt/Managedebt/P36230.asp:

1. Combine multiple credit cards into one

If you have multiple credit cards with relatively small balances, you may be able to fold them all into one. The key here is that at least one of your cards has enough credit available to cover the combined outstanding balance on the others, and that the interest rate on that card is lower than what you are currently paying overall. Some cards have special, time-limited balance transfer offers, where the balance is charged lower (or no) interest for a number of months; this is a good option as long as you will be able to pay off a significant portion of the debt before the special offer expires, and as long as the post-special interest rate is reasonable.

If none of your existing cards has enough available credit for this type of consolidation, you can consider applying for a new credit card for this purpose. Be sure to get a low interest rate credit card for this.

2. Refinance your home or car loan

If you own a home or a car, you may be able to borrow additional funds against these assets at relatively low interest rates. If you can borrow enough to cover all or most of your other debts, then you can consolidate this way. Keep in mind that the risk here is that if you default on a loan that is secured against an asset, such as a car or house, you may end up losing that asset. That said, as long as you are confident you are going to spend less than you earn, and will put the difference towards paying off your debt, this is a reasonable way to proceed.

On a related note, if you do not already have a loan or mortgage on your car or house, you may be able to take out a new, lower-interest secured loan, and use this for debt consolidation. This largely depends on your credit score, and on the value of the assets in question.

3. Get an unsecured loan

Depending on your credit history, a bank or credit union may be willing to provide you with an unsecured loan that you can use to consolidate your debt. The interest rate will depend on various factors, including your credit rating, so be sure that the rate is lower than what you are currently paying before proceeding.

4. Borrow from friends or family

Do not underestimate the potential relationship issues that may result from borrowing money from friends or family. While it may be tempting to accept a no-interest loan from someone, and use this to pay off your other debt, ask yourself first whether you are willing to sacrifice your relationship with that person, and potentially others that they know. While it is possible to navigate a personal loan without issue, doing so is extremely difficult, and therefore this option should be seen as a last resort. In many cases, if this is your only option, you may be better off not consolidating your debt after all.

Now that you know exactly what debt you have, and you have formulated a plan to consolidate it, you can confidently move ahead and execute the plan. Regardless of which consolidation route you take, there are several important factors to consider, to ensure you are successful:

1. Remember that debt consolidation in itself is not a solution to eliminating debt. Unless you start spending less than you earn, consolidated debt will not be paid off any more than unconsolidated debt. That said, if you do spend less than you earn, consolidated debt at a lower overall interest rate is a powerful tool towards eliminating that debt more quickly.
2. To actually perform the consolidation, simply transfer all the debt you have planned to consolidate to the one (or few) account(s) you will be left with. This can normally be done through a balance transfer; if you are not sure how to do this, contact the financial institution in question, and they will be able to guide you.
3. It is very important that you immediately cancel all of the accounts from which you have transferred debt. You may be tempted to leave some of these accounts open, "just in case" you need additional credit, but this is extremely risky. Should you end up adding debt on the old accounts in addition to the consolidated account, you will be far worse off than you were, and will have no way to consolidate that new debt. Remember, debt is not a solution to emergencies: that's what an emergency fund is for.