Knowing how to consolidate debt can save you a lot of money if you find yourself deep in debt. Credit cards, personal loans and car loans all carry high interest rates and fees. If you have accumulated mounds of debt and can't dig out yourself out of it, you may consider consolidating it into one payment. There are a few different ways to consolidate debt. Understanding your options will help you pick the best one for you.

Home Loan

A common way of consolidating debt is to roll it into your mortgage. This will work if you have equity in your home. You can refinance the loan and add your debt to the balance. The disadvantage is that you have increased your loan amount, and essentially tied unsecured debt to your mortgage. If you can't afford the new payment, you could potentially lose you home. The advantage of this method is that the interest rates on home loans are much lower than that of a credit card or personal loan. Also, your payments are typically spread out over thirty years, which creates lower payments. And lastly, the interest you are paying is tax deductible, where interest on credit cards is not.

Credit Card Transfer

If you are getting hit with high interest rates and annual fees on many different cards, consider a balance transfer. You can transfer to a card with a lower rate than the rest, or open a credit card that will have a zero percent introductory rate. You can transfer to the new card and make larger payments on that card until it is paid off, hopefully before the rate increases.

Borrow from Your IRA

This is generally not a good choice, since you will lose out on future interest, plus you will pay penalties. But if you have no other options, you can probably make a withdrawal or loan from your retirement account. Use the withdrawal to pay off all of the cards and vow to never charge them up again.

Alternatives to Debt Consolidation

If you want to rid your debt without any loans, you can consider a few alternatives. Try a non profit credit counseling service. They can help you negotiate new terms on your cards. Some will determine a set monthly payment and you pay the agency directly, who then pays all of your creditors. This will have an impact on your credit rating, however. Also, you can consider calling your creditors yourself. Explain your situation and let them know you want to make good on your debt, but can't meet your monthly obligations. Ask for a rate decrease so you can pay more of the principle off every month. Not all creditors will agree to this, but it is in their best interest to avoid a default.

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