Playing the Debt Consolidation Game

Where did all the money go? Countless people look at their finances and scratch their heads, wondering how they wound up in debt. For consumers who find themselves in the hole, here are some simple debt consolidation tips to help cut debt down to size.

No successful football coach sends his team out on the field without a game plan. After assessing his team's strengths and weaknesses, the coach develops a winning strategy.

The game of debt consolidation is played the same way. Even if you find yourself heavily in debt, you can draw up a game plan to help you get out of the red. Like any football coach will tell you, to win, you'll need to stick to your plan and be disciplined.

Consider adding the following debt consolidation moves to your financial playbook:

1. The home equity loan

One of the most popular financial tools for consolidating debts, a home equity loan, is a second mortgage based on the equity in your house. It generally features a low interest rate and tax-deductible interest. Many homeowners use it to pay off the balances on their high-interest credit cards, thus reducing their total monthly payments.

2. The cash-out refinance

When you do a cash-out mortgage refinance, you replace your first mortgage with a new and improved one, for more than the principal balance on your current mortgage. Existing debts are rolled into the new loan amount. Since the interest rate should be lower, your overall monthly debt payment will be reduced.

3. Look beyond your home

Don't be afraid to consider loans other than mortgages for debt consolidation. An auto loan or a personal loan is also an option. Be cautious with either. While an auto loan is a secured loan that you can borrow against, cars depreciate in value. Long after your car has been sold or replaced, however, you may find yourself still making loan payments.

A personal loan is another option, but it carries substantially higher rates than a home mortgage or an auto loan. Nevertheless, it will likely beat the high rates of most credit cards.

4. Contact your debtors

Even though a financial institution has loaned you money, you're still a customer. Call your credit card companies and your auto and home mortgage lenders and tell them that you're considering taking your loans elsewhere. They may be willing to reduce your rate or repayment terms to keep you as a customer.

Your strategy for debt consolidation doesn't have to be complicated. Take a careful look at all your options. Also, analyze your own financial tendencies. Whatever tactics you choose, make sure that the options fit within your lifestyle. Most importantly, be disciplined. You can be a winner when it comes to debt consolidation as long as you stick to your game plan.