Debt consolidation is a form of debt refinancing that involves taking out one loan to pay off other loans. The process can secure a lower overall interest rate to the entire debt load and provide the convenience of servicing only one loan. While most of this debt is from mortgages and student loans, some of it was from credit card debt. Credit cards and other unsecured credit can cost you a large amount of money each month in interest payment. This is money that can be used or saved. Getting a consolidated loan is not just so you only have to pay once a month. What it offers is a chance to pay off your entire debt at a lower interest rate. That means you can put down more than the minimum monthly payment and pay the whole amount off faster. The other advantage is that if you consolidate your loans soon enough, you can avoid - or at least minimize - the dent in your credit rating.
With the high interest rates credit card companies charge, falling behind on only a few payments can lead to a seemingly insuperable debt load. This can become very awkward within no time and you may start losing your sleep as well. To get rid of the burden, you may end up planning to sell some stuff and to take a part-time job, but there are other ways to ease out the situation as well.
Debt Consolidation Loans
Debt consolidation loans help you settle debts so you can streamline your finances with one regular payment. As the name suggests, you consolidate all your debts into the one loan, so you only have one payment to make each month. A debt consolidation loan can be secured or unsecured. A secured loan needs collateral. An unsecured loan is based on your income, credit score, and ability to pay.
Most debt consolidation loans are offered by lending institutions such as banks, credit unions, and private lenders. The overall lower interest rate is an advantage of the debt consolidation loan being offered to consumers. However, if you have a low credit rating, you may have trouble getting approved.
Debt Consolidation Companies
Debt consolidation companies negotiate with your creditors to lower interest rates, your balance, and other fees. Debtors make a single payment to the debt management company which then pays all creditors until debts are paid off.
There are two methods of debt consolidation:
This strategy consolidates unsecured debt into a single monthly payment that you send to a debt consolidation company. That company then distributes the designated funds to your creditors. The debt consolidation company works directly with your creditors to secure benefits that help you fulfill your obligations over time. Benefits with this approach may include interest rate reductions, late and over-the-limit fee waivers, and reduced monthly payments.
This plan helps people who can't repay their debt in full and are facing bankruptcy. Under this arrangement, your debt consolidation company will approach your creditors with an offer to settle your accounts for a portion of the amount owed.
Home Equity Loans for Debt Consolidation
Home equity is the difference between what your property is worth and what you owe on it. If your home is currently worth $300,000, for example, and your mortgage balance is $200,000, then you have $100,000 of equity. In this case, you can use a home equity loan to pay off your credit card debt. The interest on home equity loans is typically lower than credit card rates and is usually tax-deductible. This can be a very efficient repayment method if you can manage it properly, because there is this great danger of paying off your various loans and then continuing your bad financial habits and racking up more debt on your newly balance-free credit cards.
If you are under credit card debt and you wish to see if you qualify for a debt consolidation home mortgage equity loan or refinancing, contact our mortgage specialist now. We'll assist you in every possible way to find the best possible solution for your unique situation.