Debt consolidation loans allow individuals to combine 2 or more debts to one loan with lower interest rates. It is highly beneficial to those who are paying multiple debts with high interests. Combining debts not only provide debtors the option of paying lower monthly amortization but also makes debt management easier.
Below are the three types of loans one can use in consolidating debts.
Home equity loans are consumer loans secured by a mortgage, usually secondary. This allows consumers to borrow money against the equity or value that has been built up. Home equity loans typically have lower interest rates compared to other loan types. However, in case payments turn out to be unaffordable, risking one’s home for some credit card payables may not be a good idea.
Credit card balance transfer
This type of loan requires a credit card of a high credit limit. When considering transferring your other credit cards’ balance to one, know how long the low balance transfer rate is valid. Most often than not, credit card companies offer these low transfer rates as promotions.
Additionally, know how much the regular rate will be after the promotional period had expired. Just be cautious in doing balance transfers as it may hit your credit score because of an increase in credit utilization.
Personal loans are loans that can be taken out without the need for collaterals. It has a fixed payment amount that has to be paid within the agreed time. A personal loan of big amount may be the answer to paying all debts and having only to worry about one. However, a good credit score is necessary to get approved for a personal loan with reasonable interest rates.
Choosing the right loan
Before choosing which loan to take, make sure that you understand that you are not clearing your debt, not yet, at least. Rather, you are shuffling your cards around so it’s easier to pay them off. If you are having difficulty deciding which loan to take, reach out to a financial adviser or discuss the matter with your loan agent.