If you are already overburdened with debt then debt consolidation loans can provided you with a needed respite from high interest rates and spiraling debt servicing burdens. Your number of monthly payments will shrink and so should your interest rate.
"Debt consolidation loans really simplify the process of eliminating your debts and getting back on good financial footing."
When consolidating your debt you can negotiate a better interest rate to lower your payments and speed up the repayment time on your debts. There are several methods for doing this, but no matter which method you use the key is to make sure that the new loans give you better terms than the old and save you money in the process.
Credit cards and some forms of personal loans can have extremely high interest rates and by consolidating them into one lower rate loan you can save literally hundreds of dollars in interest payments each year. That certainly makes consolidating your debt attractive doesn't it?
There are a host of benefits you will enjoy when consolidating your debt and these include the following:
*lower payments every month
*lower interest rate
*easier accounting with just one payment each month
*can help you to avoid a bankruptcy
*will help you to get out of debt more quickly
*can save you money versus your current loan repayments
*eliminates the need for you to deal with numerous lenders
When looking for debt consolidation loans you obviously want to put yourself on better financial footing than that on which you currently stand, that goes without saying. Depending on your circumstances there are a few different ways to go about consolidating your current debts, with each having it's own pros and cons.
I am going to give you a bit more information about each method for debt consolidation now.
Home Equity Loans
It is these types of loans that have given debt consolidation such a bad name over the past years. I think this has been overdone though because in most cases those having trouble with home equity loans did not take them for debt consolidation purposes, but took them out to pay for such things as remodeling, education and even vacations.
While this worked fine as long as home prices kept rising it has not worked out so well in a falling home price environment. Don't discount home equity loans as a way to consolidate your debt because of the bad press they have gotten recently.
A home equity loan is actually the best way for most people to consolidate their debt for several reasons and you may find it is the best way for you too.
Home equity loans are a type of secured loan that uses the value of your equity in your home as collateral against the loan. That means as your home value rises you can actually get a larger loan even though you haven't made any additional payments. This is what got many homeowners in trouble.
You are going to be smarter though because you will be using the home equity loan to consolidate higher interest debt and lower your interest rate as well as your monthly payments.
You see, because the bank has a form of collateral securing the loan they will offer you a lower interest rate and better terms. You have probably seen how low mortgage rates are currently and since a home equity loan is a second mortgage on your home you will enjoy very competitive interest rates.
Consolidating Through Home Refinancing
This is another type of loan that has gotten very bad press over the past few years, but is one you can use very successfully as a debt consolidation loan. It works similarly to the home equity loan, except with a refinance you are actually restating the terms of your current mortgage.
Of course this means you have to accept the current interest rates as well, but experts agree that if current mortgage rates are 0.75% lower than your current rates you can benefit from refinancing your mortgage.
As a matter of fact, if your current mortgage interest rate is high you might even find that your monthly payments will still be lower after refinancing and adding more debt to the loan simply because of the lowered interest rate. It can definitely be in your best interest to investigate a home refinancing when you are looking for debt consolidation loans.
Personal Loans and Lines of Credit
A third method for consolidating debt is to take out a personal loan or line of credit. A personal loan is a single unsecured loan and once you pay it back your obligation is finished. A line of credit on the other hand is an open loan where the bank will give you a credit limit that you can tap at any time.
One benefit of the line of credit over a personal loan is that once you pay off your current debt obligation the line stays open so you can use it in the future if necessary for emergencies.
Both personal loans and lines of credit can be either secured or unsecured, however it is more common to see unsecured loans. As with any unsecured loan the interest rates are going to be higher than those found with home equity loans or mortgage refinancing, but they will also be lower than the rates on credit cards.
If your current debt is mostly credit card related you can save a good bit of money with these types of debt consolidation loans.
No matter what your current credit status is you can qualify for debt consolidation loans. The interest rates, terms and repayments you receive will be affected by your credit history so it is best to try consolidating your debt before rather than after you begin to run into trouble.
It is never a good idea to get so far behind that you miss payments and debt consolidation loans can ensure that you are able to continue servicing your debt and can put you back on solid financial ground...