A debt-consolidation loan is when a bank or financial institution “consolidates” your debts into a single loan.  The loan lender pays off all of your debts to the different creditors and in return you make monthly payments to the lender.

Debt consolidation can be from multiple unsecured loans into one unsecured loan, but more commonly it involves a secured loan against an asset, usually a house.  In this situation, a mortgage is secured against the house.  Providing collateral against the loan allows for a lower interest rate than an unsecured loan, because by backing the loan with an asset (collateral), the asset owner agrees to allow the foreclosure of the asset to pay back the loan.  The risk to the lender is reduced, so the offered interest rate is lower.

To get a debt-consolidation loan, you should follow these steps:

1. Add up all of your debts, including all loans and credit cards.

2. Determine the interest rates that you are paying on all loans and credit cards.  It is common for interest rates on credit cards to range between 20 and 30 percent.  This will help you to evaluate the quality of the loan offers that you get.

3. Find a lender.  Contact several lending companies and compare their loan packages.  To find lenders, you can check on the internet, look in the phone book, or ask a local real estate agent for a referral.

4. After evaluating  loan information from all of the lenders you contacted, decide which of the lenders offers the best debt-consolidation loan to meet your needs.  Loans differ in interest rate, type of interest rate (variable or fixed), length of time to pay them off, and the amount loaned.  The loan and interest rate that you qualify for will depend on you income, credit, and the equity in the home.

5. Fill out a loan application and provide all requested documentation.

6. Provide the lender with copies of all statements for credit cards and loans that are to be paid off by the lender.

7. Complete the loan process.  This usually takes several weeks.

There you go, now you know how to go from paying on multiple loans and credit cards every month to making payments against a single loan.  The key is to not get yourself back into debt by taking out new loans or getting additional credit cards.  You need to knuckle down and pay off your debt-consolidation loan and you will eventually be out of debt.

If you are out there wondering which mortgage deal to pick, then the best in the market these days is the interest only mortgage deal. With this deal, you only have to pay the interest on the capital each month rather than the capital itself. However, no deal is perfect for all individuals, thus interest-only mortgages can benefit a certain group of people in specific circumstances yet also comes with some cons. Given below are some of its merits and demerits.

The biggest positive aspect of this deal is that the monthly repayments will be less than that in the repayment mortgage. Now, each month your mortgage payment won’t be a burden for you. Secondly, along with interest-only mortgage deals, you can choose a savings account that becomes your repayment vehicle. That account is tax-efficient and can gain the best interest rates for you. It can also make you capable of doing repayments by the end of the term.

As for the disadvantages, interest-only mortgages are considered quite risky mainly because they lack the complete outline about the repayment of the loan from the borrower. There could be serious problems when the term of the mortgage deal ends, and you have no other means for the repayment of the outstanding balance on the loan. Furthermore, the interest paid in this deal is more than the one paid in the repayment mortgage. Another feature that can be counted as a disadvantage is the lengthy 25 year mortgage term.

Irrespective of those pros and cons, the main reason why 40% of borrowers prefer this mortgage deal is that it provides a repayment vehicle. It’s the savings from this vehicle that can make the task of repayments easier for you. Yet, if you wish to go for this deal, you’d better do some research beforehand.