A 60-second guide to solving debt problems

Michele Lerner

Before you weigh the pros and cons of debt consolidation loans, you'll need to face the full extent of your debt problems. Start by gathering all your bills and making a list of each credit card, the interest rate and your minimum monthly payments. Then consider your options:

1. Debt consolidation loan. If you are a renter, a debt consolidation loan offers the advantage of wrapping all your debts into one monthly payment, but you could damage your credit score in the process if you don't keep up with the payments. You could also end up paying more in the long run if you reduce your payment by extending your repayment.

2. Home equity loan. Homeowners can use home equity financing to consolidate debt into one monthly payment. Generally, home equity loans have lower interest rates than credit cards, but you'll need at least 20 percent home equity after taking out the home equity loan or you won't qualify. In addition, if you've developed credit problems, you may have a hard time qualifying for a home equity loan.

3. Mortgage refinance. If you have enough equity in your home, you could also consider refinancing and taking extra cash to pay off your credit card debt. Even if you don't have enough equity to pull out cash, you can refinance to reduce your monthly mortgage payment, and use the savings for debt relief.

4. Debt management plan. A credit counselor can enroll you in a debt management plan in which you pay the counseling company and they pay your creditors. There are nominal charges for this service, but the financial education can be valuable and you are more likely to eliminate your debt problems and stick to the program.

5. Credit counseling. If you just need help with your budget, a credit counselor can talk to you about how to get out of debt without enrolling in a debt management plan.

6. Personal debt plan. Depending on how much debt you have and your level of discipline, you can create your own debt elimination plan by developing a budget, reducing your spending and paying down your debt.

Regardless of which method you choose, you must commit to avoiding getting into future debt problems. Complete the form on this page to find out if a debt consolidation loan or home equity loan is right for you.

About the Author

Michele Lerner, author of "HOMEBUYING: Tough Times, First Time, Any Time", has been writing about personal finance and real estate for more than two decades for a variety of publications and websites including Investopedia, Insurance.com, HSH.com, SavingsAccount.com, National Real Estate Investor magazine, The Washington Times, Urban Land magazine, NAREIT's REIT magazine and numerous Realtor associations.

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