Options for Debt Consolidation

Don't be discouraged if you're in the middle of rocky financial times. People who are deep in debt now have numerous debt consolidation tools at their disposal. With a little legwork, you'll find the right option to smooth out those financial bumps in the road.

Think of debt consolidation like a large dinner menu at your favorite restaurant. You have plenty of options, but the challenge is choosing from a list of dishes that all look great.

Lenders are a lot like those restaurants. They offer plenty of ways to consolidate your debt. The items on their menus are geared to different tastes-or in this case, different financial situations. Peruse the list and you'll find one with just the right ingredients for your debt consolidation needs.

First mortgage refinance

If you've built up your home equity, you can refinance your mortgage. This transaction rolls the balances on your credit cards into your mortgage loan. This may not be the ideal long-term solution to debt, because if the new loan is at a higher interest rate than your current mortgage, you could wind up paying more in long-term interest than with other options.

Second mortgages

The two types of second mortgage include: The home equity loan, which has a fixed-rate and a fixed-term for the life of the loan; and the home equity line of credit (HELOC), which is like a credit card with the credit limit based on your home's equity. With the HELOC, you only pay interest on any balance you maintain, and the interest rate is variable. Because terms and loan sizes tend to be smaller with a second mortgage, you're likely to spend less on long-term interest than with a first mortgage refinance.

Zero percent balance transfers

Many credit cards offer 0 percent APR interest on any balance you transfer into a new account. At one time, companies offered that rate permanently; but cards have since trimmed the offer from six to 15 months. Be careful, though, because fees may be steep, and a high interest rate will kick in once the promotional period ends. The balance transfer option is a good short-term fix if you use it responsibly.

Unsecured personal loans

Unlike mortgages, no collateral is required with an unsecured personal loan. As a result, lenders are exposed to greater risk. To compensate, they charge higher interest rates and offer short loan terms. Consider this the last of your options.

As with any purchase, you'll find the best consolidation options when you shop around. Visit a number of different lenders and compare programs. Go online and check out lenders outside your zip code. When you feel like you've got enough for an apples-to-apples comparison, take your time and evaluate. The extensive menu of options will suddenly yield the debt consolidation tool du jour. Bon appetit!