what are the drawbacks of loan consolidation Article
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Consumer Debt Consolidation: A Way Out Of Debt
By Justin narin
If youre like many people, you worry that your debt is so big youll never pay it off. Every month you pay what you can, but paying the minimums on multiple cards and loans doesnt improve the situation. Consumer debt consolidation may be the solution you need to help you get out of debt and stay there.
Types of Consumer Debt Consolidation
Consumer debt consolidation comes in four primary forms:
* Personal unsecured debt consolidation loan
* Credit card debt consolidation
* Cash-out home refinance
* Home equity loan or line of credit
Each form has positives and negatives. You may find that one or two types would be more appropriate for you. Your goal is to find the debt consolidation solution that is best suited to your financial situation.
Personal Unsecured Debt Consolidation Loan
If you dont own a home, you could apply for an unsecured debt consolidation loan. That means that you dont put up any collateral for the loan. You pay off all your debts with the consumer debt consolidation loan, which leaves you with one monthly bill for the new total. You must have excellent credit and a stable income to qualify. You might also discover that the interest rate is the same as the current rate on your credit cards, which wouldnt save you any money.
Credit Card Debt Consolidation
The average person receives one or two credit card offers every day. If you have high credit card balances, you probably receive offers for low-rate balance transfers. If the credit line is large enough, you could transfer all your debts to one card. Before you accept the loan, review the initial rate, full rate, rate expiration, and transfer fees. If the rate is 7%, but only lasts six months and has a 3% transfer fee, you wont save much money. On the other hand, a rate of 0% for 15 months with a 3% transfer fee could be just what you need to get out of debt without adding new interest charges. Both a personal loan and consumer credit debt consolidation can reduce your credit score, but continuing to be plagued by debt will
hurt you more in the long run.
Cash-Out Home Refinance
If you own your home and its now worth more than the mortgage balance, a cash-out home refinance is a better option than either credit card debt consolidation or a personal unsecured loan. By refinancing, you may be able to reduce the interest rate on your home, while also pulling out enough cash to pay off your other debts. As with your original mortgage, the interest on the refinanced mortgage is tax deductible, which would increase your savings. When refinancing, beware of high refinancing fees. You should also avoid borrowing more than the value of your home or borrowing so much that you cant afford the mortgage payments. Both could put you at risk of losing your home.
Home Equity Loan or Line of Credit
A home equity loan or line of credit also draws on the equity in your home. This is the best option for people with a low, fixed mortgage interest rate. Like a first mortgage, the interest on a second mortgage or home equity line of credit is tax deductible. A home equity loan allows you to borrow a fixed amount of money without altering the first mortgage. You would simply have two mortgage payments every month. A home equity line of credit (HELOC) gives you a credit limit that you can borrow against within a certain time period, often ten years. You can borrow as much or as little as you want, whenever you need, as long as you dont exceed the credit limit. Unfortunately, some people use HELOCs as personal credit cards, which puts their homes in jeopardy. While using a HELOC to pay off other credit cards can save you money and help you get out of debt, avoid drawing on the line of credit for luxury purchases and other non-necessities.
Consumer debt consolidation can help you get out of debt more quickly than continuing to pay the minimums on all your debts. If youre serious about getting out of debt, you can find the right solution to your debt problems.
For more articles on Cons. Debt Consolidation, visit: http://www.bills.com/consumer-debt-consolidation/
About the Author:
Justin has 5 years of experience as financial adviser; his key areas are consolidation, insurance, debt relief, mortgages etc. For more free articles and advice visit www.Bills.com.
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