How to Consolidate Debt

Feeling buried in bills from creditors can be overwhelming. It might be time to consolidate debt into one or two reasonable payments to thus avoid late fees and interest rate hikes. With a little research, an individual can consolidate debt on their own or consult a debt counseling service to get help and to learn about how to consolidate debt.

Debt consolidation has become an increasingly popular way to manage outstanding financial obligations. By addressing your loans and other financial commitments, you may potentially find lower interest rates, reduce the number of creditors to whom you are beholden. Reducing or eliminating your debt can improve your credit score and financial future. Take the time to go over all your debts and options before making a final decision. Making the wrong choice can potentially put you in more financial trouble than where you are currently. If at any point you are unsure of what the best option may be, consult a debt counselor or financial planner to get some professional advice. Make sure the debt counselor, consolidator or financial planner that you choose is accredited and that you trust him or her before moving forward.

The prospect of paying off certain loans or simply reducing the number of incoming bills is indeed tempting, and often it is the right move financially. Depending on each individual's particular situation, however, consolidation is something to consider very carefully.

1. Consider your credit score before you try to consolidate. If significant debt has created trouble in the past, a consumer may not qualify for interest rates that will truly help ease them out of a pressing financial situation.
2. Is it possible to do some renegotiating before launching into an elaborate consolidation plan? Would lower interest rates make the difference? Mortgage lenders may lower rates in order to avoid debtors defaulting on loans. The same is true for student loan administrators and major credit card companies.http://www.bankrate.com/brm/news/cc/20031007a1.asp
3. See Mahalo's How to Lower Your Credit Card Rates to learn how to get credit card companies to start charging less interest every month.
4. Most importantly; be honest about how realistic it will be to pay back any additional borrowing.
   
   

The statistics are rather grim:

1. • • "70% of Americans who take out a home equity loan or other type of loan to pay off credit cards end up with the same (if not higher) debt load within two years." http://www.bankrate.com/brm/news/cc/20031007a1.asp

If an individual debtor has determined that consolidating debt is the best way to reduce and eliminate their outstanding financial obligations, they can attempt to do this on their own. With organization and discipline, one can create a plan that will work.

Depending on each individual's overall financial picture including assets like a home, there are a few ways to approach consolidating debt, individually, without the assistance of a debt professional or company.

Homeowners may choose to take out a home equity loan that consolidates their debt. The collateral for this loan is the home and therefore the loan is called a secured loan. As such, if the payments are not made, the home is at risk of foreclosure. However, the interest paid on these loans is typically tax refundable.http://www.bankrate.com/brm/news/pf/20001120b.asp/ Refinancing your car is another way to restructure your debt.http://moneycentral.msn.com/content/savinganddebt/managedebt/p36230.asp

Debt that is represented by high interest rate credit cards can potentially be consolidated by rolling the balances into a lower interest rate card. If an individual has a credit score that allows them to qualify for a favorable rate (or a rate that is at least lower that the rates on the existing cards) this may be a good option. See Mahalo's How to Get a Low Interest Rate Credit Card to find the card that will offer you the lowest interest rate or best balance transfer offer. Use Bankrate's card search tool to compare offers, too.http://www.bankrate.com/cnn/rate/brm_ccsearch_advanced.asp?menu1=Select+a+card+type&SubmitCC.x=28&SubmitCC.y=8

Finally, creative solutions like obtaining a loan from a family member or as a last resort; borrowing from retirement savings are possibilities. Remember, if an investor withdraws funds before the age of 591/2 from retirement plans, this can result in penalty fees and taxes.

A professional that guides an individual through the consolidation process, helping to lower monthly payments and reduce overall interest paid over time can be a lifesaver. Some experts say that you should start with a non-profit consumer credit counseling agency before attempting to consolidate on your own.

A consumer credit counselor will not be judgmental about debt.http://www.bankrate.com/brm/news/pf/20001120b.asp As one expert put it, they've "heard it all." Be careful whom you choose to consult, however, as there are some disreputable agencies out there who may end up charging more than you're already paying on your debt. Continue reading the following steps to find a credit counselor who will be the right choice.

RESEARCH CREDIT COUNSELORS AND/OR DEBT CONSOLIDATION LOAN OFFERS

Organizations like the NFCC, the National Foundation for Credit Counseling, come highly recommended from financial experts.http://www.nfcc.org/ http://moneycentral.msn.com/content/savinganddebt/managedebt/p36230.asp

Because the NFCC's fees are primarily paid by creditors, they have a significant incentive to work out a repayment plan that consumers can afford and stick to. And a counselor, unlike a new loan, will help individuals face the debt instead of pretending it doesn't exist, which is often the first crucial step to paying it off in earnest.http://www.bankrate.com/brm/news/cc/20031007a1.asp

Use the NFCC's Member Agency Locator to find the nearest agency. Or, schedule a consultation over the phone by calling 1-800-388-2227.http://www.nfcc.org/

Don't sign up for the first consolidation loan offer presented. "Shop around," say the experts at Bankrate, in a competitive marketplace to be sure you are getting the best deal.http://www.bankrate.com/brm/news/cc/20031007a1.asp

Look up agencies in the Association of Independent Consumer Credit Counseling Agencies, or the NFCC, both of which will provide references on an agency you are considering.http://www.aiccca.org/

DETERMINE FEE SCHEDULE UP FRONT

While finding a debt consolidator or taking out one lump consolidation loan to cover all your existing debts might seem much more organized and convenient, be sure you aren't paying a premium for the service.

1. Calculate all fees beforehand yo be sure that interest savings outweigh what you'll pay for the convenience of this kind of loan.
2. It is a case of "buyer beware" when it comes to finding a debt consolidator, whether looking for a counselor or a new loan: if the consumer feels uncomfortable or the agency is unable to explain its fee structure or how the loan will work, find another agency.

• Debt consolidation, much like debt itself, can be daunting prospect and will require careful research and dedication. With due diligence, however, there are multiple ways to reduce debt load and eliminate extra payments each month, whether one chooses to devise a system that works for them or they consult an expert to guide them through the process. Regardless of the path towards consolidation, being honest about debt and the ability to pay back a new loan is crucial. Completely eliminating debt means more than consolidating a few credit cards: It will mean taking a hard look at spending and genuinely trying to live within one's means. Stay focused and good luck!

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