Debt Consolidation Loans

Debt Consolidation Loan

Debt consolidation loans are used solely to combine all your debts. These loans may be offered by major banks or from so-called non-profit debt consolidation companies. Be careful about using debt consolidation companies to consolidate debt. These loans often include extra fees, making the cost of the loan much higher. Avoid borrowing money from one of these companies. Instead, seek out a low interest rate loan from your bank or credit union. This is a much wiser option to consolidate your debt.
Sometimes, debt consolidation companies can discount the amount of the loan. When the debtor is in danger of bankruptcy, the debt consolidator will buy the loan at a discount. A prudent debtor can shop around for consolidators who will pass along some of the savings. Consolidation can affect the ability of the debtor to discharge debts in bankruptcy, so the decision to consolidate must be weighed carefully.
In recent years, reports in the media have raised concerns about the use of consolidation loans.The worry is that many people are tempted to consolidate unsecured debt into secured debt, usually secured against their home. Although the monthly payments can often be lower, the total amount repaid is often significantly higher due to the long period of the loan. Debt consolidation sometimes only treats the symptoms of debt and does not address the root problem. In some circumstances, snowballing debt may be a better solution.

Types of Debt Consolidation Loan

you can borrow money from the bank to pay off your debts.if you've managed to accumulate a large amount of debt, you may have considered a debt consolidation loan to give you some relief. With a debt consolidation loan, you combine all your high interest rate debts into a single, lower interest rate loan. Combining your debts with a debt consolidation loan allows you to lower your monthly payment and makes it easier for you to afford your monthly bills. There are a few different types of loans you can use to consolidate your debt.

Home Equity Loans

A home equity loan is a loan that's taken out using the equity in your home as collateral. You typically must have a fair amount of equity in your home and good credit to qualify for a home equity loan. While the interest rates are typically lower than other types of loans, the drawback is that your home is now on the line for your credit card debt. If the payments become unaffordable, you face foreclosure on your home. Because of that it's generally not a good idea to use a home equity loan as a debt consolidation loan.

Credit Card Balance Transfers

A low interest rate balance transfer involves transferring all your credit card balances onto a single credit card. Low balance transfer interest rates are typically promotional rates that expire after a certain period of time. If you choose this option, make sure you know when the low rate will expire and the interest rate that will go into effect. If you want to use a credit card balance transfer as a debt consolidation loan, you'll need a credit card with a large enough credit limit to hold all your credit card debt.
There could be a downside to consolidating debt with a balance transfer - a hit to your credit score. Putting too much debt on one credit card could have a negative impact on your credit score as your credit utilization goes up.

Personal Loan

Personal loans can be used as debt consolidation loans. A personal loan is an unsecured loan that has fixed payments over a fixed period of time. Once you're approved for a personal loan, you can use it to consolidate your debts. Depending on your credit rating, you could have trouble getting approved for a personal loan. If you have bad credit you may be approved but at a higher interest rate, or you may not be approved at all.