Anyone who has multiple sources of debt could possibly benefit from debt consolidation, especially if some of that debt is from credit cards. There are a variety of debt consolidation services available, but the general idea is to replace multiple sources of debt with a single debt consolidation loan. At the very least this will simplify your life, and can also save you money by lowering the interest rate on your debts, and/or can make the monthly payments more manageable by spreading debt out over a longer time.

Six Steps to Debt Consolidation

The six steps listed below will take you through the process of researching and obtaining a debt consolidation loan.

1. Prioritize your debts. Start by listing all your outstanding balances, and note the interest rate of each debt. This will tell you not only how large a debt consolidation loan you will need to pay off your debts, but it will also identify which debts should be the highest priority to pay down--those with the highest interest rates.
2. Decide what kind of help you need. Debt consolidation services can go beyond just providing debt consolidation loans. They can include counseling to help with your current situation and teach you to better manage debt in the future. Decide whether you are just interested in getting a debt consolidation loan, or if you need additional debt consolidation or counseling services as well.
3. Identify your best source of credit. Figure out what source of credit would be best to use for your debt consolidation loan. For example, if you have equity in your home, this would allow you to get a cheaper type of loan than an unsecured loan. Better yet, you might be able to refinance your mortgage and get a lower interest rate by using a primary mortgage as your debt consolidation loan.
4. Shop for a debt consolidation loan. Once you know what type of loan you are looking for, shop around for the best terms. You can easily do your own research online. Some debt consolidation services might help you identify a lender. Keep in mind that credit counselors are not allowed to sell debt consolidation financing or get a commission for referring you to a lender. Shopping yourself helps you make sure you are getting a fair deal.
5. Make a budget you can live with. Once you know the approximate amount, terms, and interest rate of available debt consolidation loans, use a loan calculator to determine what your monthly payments could be. Before you borrow, make sure you've budgeted to meet these payments, especially if you are using your house as collateral for your debt consolidation loan.
6. Apply for your debt consolidation loan. Based on what you learned by shopping around for rates, apply to the lender of your choice. Before you fill out the paperwork though, make sure you understand their qualification standards so you can realistically assess your chances of approval.

By getting a handle on your existing debt, you'll be in a better position to avoid running up future debts.

About the Author

Richard Barrington is a freelance writer and novelist who previously spent over twenty years as an investment industry executive.