How to Decide If Consolidating Loans Is Best

As the economy struggles, consumers are finding it harder to meet their debt obligations. The auto loan default rate could increase as much as 33% by the end of 2008, for example. And while foreclosures recently trended downward, they are still up 53% from this time last year.

If you're struggling under a heavy debt load, consolidating your loans by refinancing your mortgage may provide a solution.

Refinancing a mortgage to pay off debt is one way you can lower your monthly payments. Mortgage rates are generally lower than rates for other types of loans because a mortgage is considered secured debt -- for example, your home acts as collateral for the loan.

Meanwhile, credit card debt in particular tends to carry very high interest rates because it is considered unsecured debt.

The first step in deciding whether to consolidate involves sorting out how much you owe and how much you are paying each month. Next you need to figure out how much you stand to save if you pay off your debt by refinancing with a new mortgage. The online Mortgage Debt Consolidation calculator from BankingMyWay.com can help you wrap your head around both sets of numbers.

The calculator works by using the details from your existing debts (credit card, mortgage, car loan, etc.) to figure out your overall monthly payment and the amount of your outstanding debt. By entering the interest rate and term of your new mortgage, you can see how much you'd stand to save in monthly payments.

Say you are looking to consolidate credit card debt, a car loan and your existing mortgage. You carry $5,000 in long-term credit card debt at an 18% interest rate and you pay $200 on it each month. You also have a five-year, $15,000 auto loan at 7.5%, and you've managed to make two years worth of payments at $301 a month. Finally, you have 15 years left on a $200,000 30-year fixed rate mortgage at an interest rate of 7.51% with monthly payments of $1,400.