Debt Consolidation Loans Explained: 6 Things You Need to Know

Debt is a problem for many Americans. Especially now in the holiday season. So, what will you do when the holidays are over, and your credit card debt is piling up? Debt consolidation loans are a great way to combine your debt into one monthly payment, with less interest than you were paying on each credit card.

What Are Debt Consolidation Loans? Debt Consolidation loans allow you to put most or all (depending on what funding or lines of credit you have available) of your debt onto one line of credit, or loan, to reduce interest and monthly payments.

What Kinds Of Debt Consolidation Loans Are Available? -Refinance or Home Equity Line of Credit (HELOC) -Balance Transfers -Personal Loan

How Can A Refinance Or HELOC Help You? If you are a homeowner and your mortgage is in good standing, you can use the equity you have in your home to cover a debt consolidation loan. Don’t worry if your credit is in bad shape because you have too much on your credit lines. Your mortgage company will consider that when approving you for a refinance.

What Is A Refinance? Completing a refinance on your mortgage means you are taking out a new loan through a mortgage company and applying it to the old one to pay it off, plus whatever you are using the new funds for. Generally, you need to own the house for at least two years before you can refinance because you have to make the payments and build equity over time.

What Is A HELOC? A home equity line of credit (HELOC) is a line of credit from the equity you have on your home. If you don’t want to go through a refinance process, this is a good option because you will still pay less interest than you pay on your other lines of credit combined.

Another Important Factor To Remember For Both Refis and HELOCS Is that you are putting your house on the line for this debt consolidation loan. Do your math and make sure your budget has room for each month’s payment.

How Can A Personal Loan Help You? We will discuss the last type of debt consolidation loan today is a personal loan. These loans are helpful because there are options from online lenders that are willing to work with you even if you have a lot of debt to consolidate.

So How Do You Decide If A Debt Consolidation Loan Is The Best Option For You? In the end, all you can do is research to make sure you know what your options are and then make a choice based on what fits your financial situation. Choosing to apply for a debt consolidation loan can be very helpful if you choose the right option.

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