by Kimberly Schiller

Created on: June 15, 2010

Over the course of a lifetime, a person can accumulate a variety of credit card and personal debts. The more bills you receive, the harder it is to keep track of them and the easier it is to forget to make a payment. Consolidating your outstanding debts can be a smart way to simplify your finances and save some money. Here are four of the most common ways to consolidate your debts.

*Balance transfer

If you receive multiple credit card bills every month, it can be confusing to keep track of when each one is due. Transferring all the balances to one card leaves you with one bill to pay every month and one due date. If your credit is decent, you may receive offers from your credit card issuers offering special balance transfer rates. Otherwise, you can go on their websites or call customer service to find out if any of your creditors will accept balance transfers.

The key is not to be blinded by a great short term offer. Zero percent interest for six months sounds great, but not if the APR after six months is higher than you are already paying. Look for the best long term deal, and be sure to figure in any transfer fee. You should also make a note of the credit limit on the account you are transferring your balances to. Maxing out any one credit card will damage your credit score.

*Consolidation loan

A consolidation loan is an option if none of your credit card issuers offers a balance transfer, or if you have debts other than credit cards that you would like to consolidate. You can apply for a consolidation loan with a company that specializes in them, or for a personal loan with your local bank or credit union.

Once you apply, the company checks out your credit history, income, and other financial factors. Then they let you know how much money they are willing to lend you, what the interest rate will be, and what the length of repayment and monthly bill will be. Some of the key factors to consider are if the interest rate is lower or equal to what you are already paying, and if you can afford the monthly payment.

If you accept their offer, they will send you a check for the full amount, which you then deposit and use to pay off all your other accounts. Some consolidation loan companies will pay off your creditors for you to save you that step. Then you just pay the loan company every month. It can be easier to get a low rate on a loan rather than a credit card, but if you have bad credit this might not be an option.

*Credit counseling/debt management

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