Home > 2013 > Managing Debt > How to Consolidate Your Debt

How to Consolidate Your Debt

Advertiser Disclosure Comments 6 Comments

Are you trying to figure out how to consolidate your debt? One of our readers, Ricky, wrote on the Credit.com blog that he is “trying to consolidate bills since divorce to get back on track.”

Another reader, Norma, wrote:

I have too much credit card debt with high interest. I applied for a loan to consolidate all into one payment, I didn’t get it because of something on my credit report. My payments are always on time by using auto payments. Sears raised the interest to 16.24%, Chase raised theirs to 29.99% and there is no talking them down either. I plan not to use either of the cards again now or after they are paid off.

How can they charge such high interest on credit cards when the savings account is paying 1.25%?

Once you’ve decided to consolidate your debt, there are several important steps you need to take so that it’s ultimately beneficial for you.

1. Check your credit reports and get your credit score.

You can get your credit reports from each of the three major credit reporting agencies for free once a year. It’s a good idea to review them so you don’t end up in the situation Norma found herself in, getting denied due to a mistake or negative items you weren’t aware of on your credit reports. Your credit report should also list most, if not all, of your debts, which will help you with the second step.

You can check your credit score for free using Credit.com’s Credit Report Card. It will show you what factors in your credit are strong and what may need some work. You can also find out whether your credit is excellent, good, or not so hot.

2. Take an inventory of your debt.

Make a list of the balances you owe on each of the cards or loans you want to consolidate, the interest rates and the monthly payments. This will help you identify the debts that are most important for you to consolidate. For example, in Norma’s case, while both of her interest rates are high, she should try to consolidate the balance at 29.99% first, since it is so high.

3. Research debt consolidation options.

You may be able to consolidate with a loan from your local bank or credit union, an online lender that offers personal loans, or by transferring a balance from a high-rate credit card to a low-rate one. If you get a consolidation loan online, be sure to deal with reputable lenders as there are scammers who will take the information consumers submit with applications and use it fraudulently.

Before you apply, try to find out if the lender can provide you any information about its credit requirements. Some lenders, for example, may require a minimum credit score or won’t extend credit to those with bankruptcies listed on their credit reports.

4. Apply for a consolidation loan.

Once you’ve narrowed down the field of places to get a consolidation loan and learned as much as you can about their lending requirements, it’s time to apply for a consolidation loan. In most cases, you can get an answer almost immediately. If that answer is “yes,” you can move onto the next step.

If the answer is “no,” take a careful look at the reasons you were turned down. If you think those answers don’t really apply, try calling the lender and ask to be reconsidered for the account. If you are turned down due to the debt you are carrying, for example, but explain that you are going to use the new loan to consolidate that debt, you may have a shot at getting the loan. It doesn’t hurt to ask!

If you can’t get approved for one of these loans after trying a couple of lenders, you may want to talk with a credit counseling agency. These agencies can often help clients lower their interest rates or payments through a Debt Management Plan (DMP). If you enroll in a DMP, you’ll make one payment to the counseling agency which will then pay all your participating creditors, so even though it’s not technically a consolidation loan, it feels like one.

5. Consolidate your debt.

If you are approved for a consolidation loan, you can then use that new loan to pay off other debts. If you don’t get a new credit line large enough to consolidate all your debt, focus on paying off your higher rate loans or balances first.

6. Pay your loans off as fast as possible.

If you can add a little extra to your monthly payments, you’ll be able to pay off your new loan faster. Even if you don’t, you’ll want to do your best to avoid the temptation of tapping the credit lines you have just paid off. After all, your goal with debt consolidation should be to dig out of debt — not to dig the hole deeper!

Image: iStockphoto

Comments on articles and responses to those comments are not provided or commissioned by a bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by a bank advertiser. It is not a bank advertiser's responsibility to ensure all posts and/or questions are answered.

Please note that our comments are moderated, so it may take a little time before you see them on the page. Thanks for your patience.

  • Pingback: How to Get Out of Debt: The Real Secret | Best Credit Repair()

  • Guest

    Gerri, I would like to Consolidate my debt by a loan or what makes the most sense. I lost my job June, 2011, temped for a while… then went on disability. I am 56 years old. Worked most of my life. Have credit card debt, owe on my home took out a line of credit after my car died, and I needed $4,000 worth of dental work. I signed for my neices student loan in 2001, while I was still married. In 2003 I was divorced.

    Do you have any suggestions or ideas for my situation?

    Thank you,

  • Pingback: How to Consolidate Your Debt | Credit.com Blog | Debt Consolidation Loans Advice()

  • Pingback: Will Debt Destroy Your Credit Score? | Best Credit Repair()

  • http://www.credit.com/ Credit.com Credit Experts

    Hi, Charlotte —
    Consulting a credit counseling agency doesn’t affect your score, but enrolling in a debt management plan (where you make one payment and send it to the agency) will. After your debts are paid off, you can get a secured card and re-establish credit. You’ll find more information here:

    How Do Debt Relief Options Affect Your Credit?

  • Pingback: Flonder | How to Consolidate Your Holiday Debt()

  • http://www.Credit.com/ Gerri Detweiler

    In that case Dani, it makes sense for you to contact a reputable credit counseling agency to get on a plan to lower your debt. You’ll learn more about how credit counseling works here.

  • http://www.Credit.com/ Gerri Detweiler

    It sounds like you are really struggling. Would you be willing to reach out to a reputable credit counseling agency to see what they can recommend? We wrote about credit counseling in this article: Does Credit Counseling Work?

  • CricketJ19

    I know this post was three months ago, but if you are the only income, have you looked into energy assistance through your utility companies? Also look up

    Low Income Home Energy Assistance Program LIHEAP.

    Again, I don’t know where you are from, but I am part of a local to my area Facebook group called moms helping moms. It’s a free give and take site. Maybe you could find one for your area and you might be able to get some free groceries and clothing for you and your boys. Or at least coupons. Also, check with your local food bank. You don’t have to “be dependent on the system” but a few grocery staples here and there can go a long way in addition to regular grocery shopping.

    I would also suggest working with your local credit union or bank to see if they can help you start a savings account with an automatic transfer (even just $5) once you get your bills caught up, so you can get an emergency savings started to help when you need another big expenditure.

    Best of luck to you.

  • http://www.credit.com/ Credit.com Credit Experts

    A good place to start is by checking your free annual credit reports to figure out what you owe. From there, you probably want to negotiate directly with your creditors on how to repay what you owe.

Certain credit cards and other financial products mentioned in this and other articles on Credit.com News & Advice may also be offered through Credit.com product pages, and Credit.com will be compensated if our users apply for and ultimately sign up for any of these cards or products. However, this relationship does not result in any preferential editorial treatment.