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Debt Consolidation | |
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Debt Consolidation Guide
There are three main ways to consolidate your debt to reduce your monthly payments and bring financial relief.
1. Debt Consolidation Loan
A debt consolidation loan company does exactly what its name implies. It consolidates your debts into one loan that is paid back in a single payment to the company. There are two types of debt consolidation loans, which are secured and unsecured.
Unsecured Debt Consolidation Loans require no collateral on your part to secure the loan. These loans allow you to have lower monthly repayments and can provide much needed financial relief. However, the length of the loan is likely to be longer and you could end up paying the same amount that is owed in the long run anyway. Therefore it pays to shop around for the lowest repayment plan for this type of loan.
Secured Debt Consolidation Loans require that you secure the loan with some sort of collateral, like your house or car. Seeing the loan company are more secure in lending money with collateral the benefit to you is that you can get a significantly lower interest rate. The downside to this type of loan is if you cannot keep up your payments you risk losing whatever you have used for collateral.
2. Home Equity Loan
A home equity loan allows you to borrow on the amount of equity you have in your home. Say you house is valued at $200,000 and you owe $150,000, then you can borrow up to $50,000 to pay off your debts. The benefit of this type of loan is that they tend to have low interest rates and lower repayments. It is good to keep in mind that with a home equity loan your house is your collateral, so you would want to feel confident about being able to make monthly payments before paying debts off in this way. You can obtain a home equity loan from your bank, credit union or from an independent mortgage company.
3. Credit Card Transfer
Transferring all your credit card debt on to a new lower interest credit card is another way to consolidate debt. It is best suited to people who still have a good credit score, but are having trouble managing their escalating credit card debt. A good credit score is important in acquiring the best interest rates and terms when transferring debt on to a new card with a new credit card company. Look for a card with no transfer fees and a 0% Introductory APR (annual percentage rate) for at least six months, with a low ongoing APR below 10%. If your credit score is not so good you can transfer all or as much of your debt on to the lowest interest rate card or cards that your have. That way your will have fewer payments with a lower overall interest rate.
Used properly debt consolidation can be part of a sound plan to regain control of escalating financial troubles.
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