Consolidating your various debts in a single low-interest loan can save you considerably on interest payments alone, and may even help you discharge your debts in an expeditious manner. Depending upon the individual amounts, and the types of your debts, you may be able to potentially save a significant amount if you were to consider debt consolidation.

Debt consolidation means paying off your current debts against one single consolidated loan. This allows you to make one single monthly payment that you can reasonably afford to make. Depending upon the total amount of your debt, and the amount that you are able to pay off every month, it is not that difficult to calculate the length of time it is going to take you to pay off your new consolidated loan.

Here is a simple way to get started with the process of debt consolidation:

• Document All Your Debts: Write down details of all your debts by category, amount owed, and your monthly payments.
  
• Set A Goal (A Target Date) By Which You Wish To be Completely Debt Free: Be aggressive, but be reasonable. Do not over-commit yourself. The last thing you want to do is to commit to a repayment schedule that you would have difficulty keeping up with. The length of time within which you may be able to pay off all your debt primarily depends upon three things: The amount of your total debt, the monthly installment that you know you can make to pay off your debt consolidation loan, and the interest rate charged by your lender.
  
• Estimate the Amount You Can Afford To Pay Every Month: Compare your monthly income with all your monthly expenses, and come up with a figure for the monthly installment. You need to allow for contingencies. This should be the amount that you know you will be able to devote every month to pay off your consolidated debt. Remember, the smaller this amount is, the longer it is going to take you to pay off your consolidated loan. However, it is certainly not in your best interest to over-stretch yourself such that it would make it very difficult for you to live up to that commitment.
  Things to remember:
  • Credit cards usually do not have fixed payment schedules. Most credit cards require a minimum payment of approximately 2% of the amount owed.
    
  • Many loans (such as lines of credit) do not have fixed payment schedules.
    
  • Certain loans (such as those that you may have used to finance your vehicle, your boat, or your RV, etc.) usually do stipulate fixed payment schedules.
    
  • Most personal loans also usually stipulate fixed payment schedules.

  You monthly repayment installment should, therefore, be arrived at only after a careful review of the above, your monthly income and expenses, and the length of time within which you wish to discharge off all of your debts.

• Shop Around For Your New Consolidated Loan: Armed with all of the above mentioned details, the next thing to do is to evaluate your options for your new debt consolidation loan. Your options may include getting a:
  
  • Home Equity Loan:: If you own a home, and have built up equity in your home over time, this may be your best option considering that you may be able to write off the interest that you will be paying for your debt consolidation loan.
    
  • Personal Loan: If you do not have sufficient equity in your home or any other real property, you may have to consider getting a new personal loan to consolidate all your debts. Unlike a Home Equity Loan, the interest that you pay for a personal debt consolidation loan may not be tax-deductible. Speak with a taxation specialist for details.
• Compare The Numbers -With and Without Debt Consolidation: Compare the numbers, and see if you would save significantly by consolidating all your debts. In most cases, when someone consolidates debts into one single low interest debt consolidation loan (regardless of whether it is a home equity loan, or a personal loan), savings are often significant. As your interest goes down, your debts grow (get compounded) at a slower rate. You can use the money so saved to either lower your monthly payment, or to pay off your consolidated debt faster -without having to make larger monthly installments. Most people take longer to pay their debts, and have to usually repay a larger amount if they do not consolidate their debts.

It is usually a good idea to speak with a loan specialist, or a financial adviser to explore your options. Investing in a few hours of consultation with a professional loan specialist who specializes in debt consolidation often pays off many times over. For example, your debt consolidation loan specialist may be able to tell you if you would qualify for a lower interest debt consolidation loan. It is highly advisable, therefore, that you consult with a financial professional specializing in debt consolidation loans.