You have a lot of debt. You’ve figured out that you’re spending more money every month than you need to because you have loans all over the place at different interest rates. The lifestyle of debt is making you crazy—so many bills, so many late fees. You’re ready to consolidate your debt.

You even know that there are three main ways to consolidate: you can refinance your house, you can get a home equity loan, or you can get an line of credit or loan (secured or unsecured).

The first step is to talk with a financial planner or debt consolidation expert to map out the path that is going to be most advantageous for your particular situations. Lots of factors (your age, credit history, employment status, state laws) come into play here.

But once you’ve decided what you need to do, what do you do next? Stop and read this.

If you own a house and want to refinance as a way to consolidate and pay off your debts, your best bet is to contact your current mortgage lender. The same goes for a home equity loan.  There are three main advantages to working with your present mortgage company: they already know you, you’ll probably get the refinance more quickly, and you may avoid some fees that a new lender is likely to charge.

Unless you absolutely hate your current mortgage company, start with them. If they tell you no, you should not just give up. Instead, try to find a lender yourself or go to a mortgage broker.

A mortgage broker is an independent agent who works with many mortgage companies and sets up mortgages for people. You can find them in the phone book. The big advantage to a mortgage broker is that you have “one-stop shopping” in that you talk to the broker and he or she should be knowledgeable enough to know where you are most likely to get a mortgage at the best terms.

You can also go directly to mortgage companies. They’re also in the phone book or online.

Both of these methods probably involve filling out applications (and mortgage applications can be very long) and paying some fees. And they take time—even if everything works quickly, if you end up refinancing with a new company, you may be two months before the mortgage goes through. And if you hit a couple of dead ends before that, you may be three months or more “in limbo” as you wait to consolidate your debt.

What if you need help right now? Well, you won’t get it with the refinancing option. You should start that process as far ahead as you can. But if that is not an option, you can call your various creditors and explain the situation to them. You may be able to get your mortgage company to talk to them or to provide paperwork that demonstrates that you are “in process” with your debt consolidation.

The key to that is being very methodical and explaining in detail where you’re at with your refinancing to each individual creditor. Some will probably cut you some slack, some might not, and a few may get horsy about the whole thing and want a boatload of details. Keep cool and work with them. They lent you money, so they weren’t all bad, and it’s your job now to demonstrate your good intentions. You won’t be very convincing if you ignore them, lie to them, or get mad at them!

If you don’t own a home or have decided with your certified credit counselor that you want an unsecured debt consolidation loan, there are lots of lenders out there. They’re online, they’re in the phone book, they may even have local offices in your home town. You can also get loans from banks.

The biggest thing to decide with an unsecured loan is whether you want a lump sum (you get one payment to you, which you use to pay off your debts, and then you pay off the organization that gave you the lump sum) or a line of credit. A line of credit is often given in the form of a checkbook. You write checks from this special account to pay off your debts. Then the organization that gave you the checkbook sends you a bill every month.

Unsecured loans require some very careful scrutiny. Don’t go for this kind of loan unless you can read  fine print and are willing to do some homework. Do not take out this kind of loan without reading the paperwork, including the fine print. Take your time and don’t feel embarrassed if you need to ask questions. Make sure you understand exactly what you’re getting into!

The reason for this warning is not that unsecured debt consolidation loans are a bad deal—many are great. But there are lots of people out there trying to hustle a buck and some unsecured loans are not so hot for the person borrowing the money. First of all, find out the interest rate. You want an interest rate that’s lower than what you’re paying now, otherwise there’s no point in consolidating your debt. (If you pay 10% to 12% on all of your current debts, don’t take out an unsecured loan at 14%--you’ll end up paying more than you do now!)

In fact, you want the lowest possible interest rate you can get. What may surprise you if you’re not a big financial wheeler-dealer is that there is a lot of variation in the marketplace in terms of interest rates. Just as you can buy a watch that costs $10 or one that cost $10,000, you can get loans at all different interest levels. But unlike watches, there may be no difference in quality at the higher prices!

Read the paperwork carefully. How often do you have to make payments? What will the payments be? (Look at the dollar amount, sure, but also double check the interest rate; if it’s not shown or is unclear, ask.) What happens if you make a payment late? Can you skip a payment? What are the terms of the loan? For instance, if you miss a payment, does the entire loan balance become due? (Yes, there are loans that do that!) Find out if you can pay off the loan early without penalty. (In other words, if you suddenly wanted to pay off the $10,000 remaining on your debt consolidation loan, could you do it or would you have to pay the interest that would have been due anyway? Some loans insist you pay all the interest that would be due under the original length of time of the loan, even if you pay it early.)

Before you sign up for an unsecured debt consolidation loan, check out the organization offering the loan. Don’t go to same-day lenders, those outfits that process speed loans. Why? That efficiency is expensive in terms of interest rate.

Avoid going to a friend or family member. This is business, and you should start taking care of your business like it was business. A local bank, brokerage house, or credit union is a great choice, especially if you know them and they have good standing in your community. Besides, borrowing money from a friend or family member will not improve your credit score, and you probably need to work on your credit score, too.

What about Internet lenders? Actually, more and more business these days is going online so you can find reputable, good-quality unsecured debt consolidation loans online. But be careful! There are also a lot of unscrupulous lenders online and some that are just a bit shady. Overall, it’s probably easier to hide a corrupt identity online than it is in a brick-and-mortar business in your hometown. So be careful.

To check out online sources, look for organizations that you have heard of. Check the site to see if it has a Better Business Bureau logo on it; only companies that are members of the BBB can display it. Call the BBB to find out if there are complaints about that company. Get references, if you can (for instance, ask your friends, family, colleagues, even bankers or other financial people who they would recommend).

There are a few signs that should make you suspicious of an online lender. Where did you find them? Was it a link from a porn site? Does the website look professional and well organized or is it haphazard? Does the company list its physical address and phone number clearly on the website? (Credible businesses always do this!) Don’t be afraid to call the number to see who answers. Does the company respond to e-mails? (Don’t guess, test.) Can you find online complaints about that lender? (For instance, if you’re looking into the ShadyLady Lender Company do a Google search for ShadyLady and ShadyLady Lender and check maybe the first 50 things that come up.)

What about the local loan shark? Loan sharks do not help you get out of debt. They charge sky-high interest and although they may make your life more colorful, they won’t help your debt at all and may even beat you up. Besides, if your circle of acquaintances includes loan sharks, you need to work on getting a better class of acquatinances.

If you have a good relationship with your bank, this is definitely the time to use it. They may even have an option that you haven't thought of. And don’t be afraid to ask some other local banks. Most banks have people who will sit down with you (no cost to you) to discuss your financial issues and possible solutions they can offer. Now a bank officer is not a certified credit counselor. The bank person will only be able to tell you about the loans or programs that his bank offers.

However, banks are a great resources, particularly since their advice is free and most reputable banks have excellent (and honest) lending policies.

Remember, you goal is to get out of debt, not just get another loan. Avoid any new loan that is going to get you in worse hot water! If you can’t consolidate your debt in a way that offers you an advantage, you’re better off not consolidating but finding some other solution.

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