Debt Consolidation Loans
Debt Consolidation Loans
You’ve just paid your monthly bills and you feel slightly sick to your stomach. Having little to no expendable cash is becoming the norm for you, but guess what? You’re not alone. There is a possible answer to your dilemma - read on to see if a debt consolidation loan could work for you.
Debt consolidation loans are, simply put, loans with lower interest rates than your other individual debts; such as credit cards. The way it works is simple. You trade in multiple payments for only one payment per month, at a lower interest rate. So, how do you go about figuring out what you’ll need?
Grab your statements from the debts you’re considering consolidating. Make a list; noting the payoff balance, the timeframe you’ll pay it off at the current rate, plus the interest rate you are presently paying for each. Add it up for a grand total - this is the amount you need to pay off, therefore, it is the amount you need to secure a loan for.
There are three types of loans to consider. You can refinance your mortgage, you can get a home equity loan, or you can apply for a personal loan. Each have advantages and disadvantages to think about.
If you refinance your existing mortgage, or if you get a home equity loan, the time until you pay off your house may increase. Also, with both these loans, realize you are putting your home up as collateral. If you can’t make the payments, you could lose your house. Be certain this is a risk you’re willing to take. The big advantage? You’ll receive a tax benefit at the end of the year from Uncle Sam.
Personal loans are also a possibility for debt consolidation. The biggest disadvantage is the likelihood of receiving a higher interest rate than you would with either a home equity loan or a mortgage refinance. The reason is simple, this type of loan is unsecured, meaning it is based primarily on your credit score, with nothing to secure the loan if you forfeit. However, this is also an advantage as your home is not being used as collateral.
Debt consolidation is an excellent way of reducing overall debt as well as your outgoing and long-term cost, but there are a few things you’ll want to double check before signing on the dotted line.
Remember that list you made earlier? Use it as a reference as you check the specifications of the loans you’re considering. Is the interest rate lower than you are currently paying? Will you pay the new debt off in an equal or lesser timeframe than you would if you didn’t consolidate? Even if the new loan has a lower interest rate, if it takes you two additional years to pay off, you still may end up with more out of your pocket.
The bottom line? Be informed on what is available and educate yourself on the best fit for your financial lifestyle.
