Debt is a problem for many Americans. Especially now, during the holiday season. So, what will you do when the holidays are over and credit card debt piles up? Debt consolidation loans are a great way to consolidate your debt into one monthly payment with less interest than you paid on each credit card. This is a fix that will not only help you pay off your debt but also save you money on interest.
What are Debt Consolidation Loans?
Debt consolidation loans allow you to place most or all (depending on what kind of financing or lines of credit you have) of your debt on one line of credit or loan to reduce interest and monthly payments. This option is available for you to save money on interest, pay less monthly and pay off your debt with as few payments per month as possible.
What types of debt consolidation loans are available?
There are several options to choose from depending on your situation.
You can explore some of the options available:
-Financing or Home Equity Line of Credit (HELOC)
-Balance transfer
-Personal loan
How can refinancing or HELOC help you?
If you are a homeowner and your mortgage is in good standing, you can use your home equity to cover a debt consolidation loan. Don’t worry if your credit is in poor condition because you have too many lines of credit. Your mortgage company will take this into account when approving your refinancing.
You will have a better chance of being approved with refinancing if you agree to have checks written directly to the credit card companies at closure. This is because it ensures that you use the money to consolidate your debt and not spend it on other things.
What is refinancing?
Finishing refinancing a mortgage loan means that you take a new loan through the mortgage company and apply it to the old one to pay it off, plus what you use the new funds for. Typically, you need to own a home for at least two years before you can refinance it, because over time, you have to make payments and build capital.
– Say that you bought your house for 100 thousand dollars and have owned it for four years. It is now worth $ 4,000,000 because the cost of housing has increased significantly since you bought it. The bank will get everything you owe on your current mortgage, and you can use the rest of the money to pay off debt, pay medical bills, etc.
Once you get approved, you set up the closure and checks will be written directly to your mortgage company and to any companies with which you have debt. If you haven’t gotten enough approval to cover your entire debt, don’t worry, you can still pay back as much as you can, save on interest on bills you can transfer, and use your savings to pay off the remaining amount. balances together with the transfer.
What is HELOC?
Home Equity Line of Credit (HELOC) is a line of credit against your home’s equity capital. If you do not want to go through the refinancing process, this is a good option because you will still pay less interest than other lines of credit combined.
This option is limited because you must own the home and have a good mortgage, but it is a good option if it suits your needs. You will also want to have a clean credit history for this option because banks are not as lenient with credit history as private lenders.
Another important factor to keep in mind for both Refis and HELOCS is
that you are putting your home on the line for a debt consolidation loan. Calculate and make sure you have room in your budget for monthly payments.
In fact, you save money because the payment will be embedded in your mortgage payment. This will be less than what you paid in total with all of your different minimums. Build your budget and proceed with caution, making sure you know exactly how much you can afford to cover on a monthly basis.
How can a balance transfer help you?
Balance transfer is an option provided by credit card companies. Balance transfer is a great option for getting a debt consolidation loan if you have high interest revolving debt.
Depending on your financial situation, you may receive offers by mail from your bank and others to transfer your credit lines to their line at low or zero interest rates for the period of the promotion.
This will allow you to reduce the monthly minimums, the interest you pay on your current lines of credit, and help streamline the billing process as you have to pay less over the course of the month.
Typically, if your lines of credit have a good track record, you will receive balance transfer offers. Your credit history will play a role in how much interest you will be charged and how long you have with the reduced rate before it rises.
Make sure you plan your payments to pay off the lines you translated before the end of the promotional period, otherwise you will end up paying very high interest on this loan later on.
Is it too much to pay before the promotional period expires? It’s okay if you are prepared and set up another balance transfer, if you can, in order to keep paying it out with little or no interest.
The downside of balance transfers is that they don’t immediately help your loan like getting a loan because the debt is temporarily held in your line of credit until it is paid off, but the upside is how much your credit rating rises. when your debt pays off! Is there a better outcome than a clean path to financial freedom?
How can a personal loan help you?
Today we are going to discuss the last type of debt consolidation loan – the personal loan. These loans are useful because there are options from online lenders who are willing to work with you even if you have a lot of debt that needs to be consolidated.
These loans usually have a higher interest rate than the other options, but in most cases it is still less than what you pay if you combine all the interest payments you pay across multiple lines.
They usually get approved faster than traditional loans, so you have the funding you need to help you not only cover your costs but also keep them down.
So how do you decide if a debt consolidation loan is the best option for you?
At the end of the day, all you can do is research to make sure you know what options you have and then make choices based on what suits your financial situation. If you choose the right option, it can be very beneficial for you to apply for a debt consolidation loan.
This post originally appeared on Savoteur.