If you face financial difficulties, owe multiple

debts

to various creditors, all sums differ essentially from small to big, you have difficulty tracking the dates, amounts, interest rates to be paid off, then it would be a wise thing to go for

debt consolidation loan

. You would have your multiple

debts

“united”, i.e. you will only have to make one timely payment each month, your interest rates will be reduced, thus you’ll be paying less each month. Thus, instead of dealing with multiple creditors every month, scheduling various payments, calculating interest rates and fee, you will only have to make one payment to the

debt consolidation

agency, which then distributes the funds among your creditors, negotiates on the lower interest rates for you.

So, what does it take to succeed in a

debt consolidation

plan? The answer is simple – self-discipline and careful planning.

Now, let’s see how to create a

debt consolidation

plan yourself.

1. First, you need to analyze your

debt loans

. Create a detailed list of your

debts

(except your mortgage loan), approximately it looks like this:

Credit card debt

$8,500

Auto loan $21,000

Bloomingdale’s store credit card $2400

Total

debt

: $31,900

 

Add another column for the amounts of payments you make each month towards each of the listed

debts

, assume you pay 5% payments every month:

Credit card debt

($8,500 x 5%) $425

Auto loan ($21,000 x 5%) $1,050

Bloomingdale’s store credit card ($2,400 x 5%) $120

Total

debt

: $1,595

 

Now, let’s do some simple calculations. With the given

debts

, your

debt consolidation

plan will be successful if:

- you get a

debt consolidation loan

of $31, 900

- the monthly payment to repay that loan is no more than $1595.

Otherwise, there’s no point consolidating, because it wouldn’t be economically wise

2. Choose carefully the best option of

debt consolidation loan

.

Let’s see what types of loans are best to take as a

debt consolidation loan

:

- home equity loans usually offer the lowest interest rates, because you sign your equity as collateral. However, NEVER go for a home equity loan if you are not sure you can pay the loan off on time. Because the bank can take your home in case you default. One of the advantages of a home equity loan is that the interest rate you pay is tax-deductible. Now, let’s calculate. If you choose to take a home equity loan of $31.900 to pay out your

debts

, with a 7% interest rate, your monthly payment for the period of five years will be:

Annual Interest = ($31,900 x 7%) =$2,233

Total Debt = ($31,900 + $2,233) = $34,133

5 year term = ($34,133 / 5 years) = $8534

Monthly payment = ($8,534 / 12) $711

 

- another viable option is a cash-out refinancing. In this case, you take a new mortgage on your home, only this time it is larger than the first time. For example, if at present you have a mortgage loan of $100,000 and the price of your house is $150,000, you might borrow a larger mortgage loan of $131,900 ($100,000 for the mortgage loan on the house + $31,900 to pay off all your debts). Consequently, your monthly mortgage payments will be higher, but you will eventually save a lot more, because you will pay off all your consumer

debts

and be rid of the interest rates on them.

- Personal loan. In this case, you do not put your house as collateral. It’s a good option if you wish to avoid putting your home at risk, or if you don’t have a home yet. However, personal loans usually require higher interest rates, but lower than the credit card annual percentage rates.

One way or another, when choosing between the above-mentioned types of loans, you must also take into account the closing fees and charges, anything that influences the final amount of loan you take.

3. Do not miss such an excellent tool as Debt Consolidation Calculator. Because if you go to a meeting with the potential

debt consolidation

agency taking care of your

debts

, and you know what numbers to expect, you may easily see if they are trying to foul you, offering you absolutely unworthy

debt consolidation

plans.

4. Self-discipline. The crucial point in

getting out of debt

, and staying out of debt in future. You just need to keep in mind that you can not afford to have more

debt

, and do everything to stay

debt free

. Create a household budget and stick to it, control your expenses, cut the ones you can do without. And finally, no panicking.

Debt

is a problem with multiple ways out, you only have to choose the right one for you!