There are many types of debt consolidation loans to choose from, but one might be better than the other for you depending on your specific circumstances. Read on below to help you choose the best one for your needs!
But First, Why Consolidate Debt?
Paying debt can be very difficult, more so when you have to remember each one and make sure that you pay each one’s monthly payment before their due dates. Most loans also have high interest rates, so paying them off often means just trying to keep up with the minimum payment each month.
The beauty of debt consolidation is that it allows you to manage your debts easier. When you take a loan to pay off high-interest debts, you end up having just one debt to pay in the future!
Debt consolidation helps you get rid of the trouble of having multiple loan bills. Not only that, but some debt consolidation options help you save in the long run because of their relatively low interest rate.
Below are 4 popular types of debt consolidation loans that you can use to consolidate your debts.
You can consolidate your debts with a personal loan if it is an amount that is large enough to cover your debts. Because a personal loan is an unsecured type of loan, you can expect to pay higher interest than other loans in this list. You will also have to make sure that you can afford the fixed payments.
A personal loan might be very difficult to get if your credit rating isn’t impeccable. Note too that because this is a high-interest loan, there is a huge possibility that you won’t be saving money in the long run.
Credit Card Balance Transfers
Credit card balance transfers work because this type of loan usually have a low interest rate, so you’ll be able to save quite a bit. The downside is that the low interest rate is usually for a certain length of time only. This means that any savings you’ll be able to get won’t be very substantial.
Note that using this method to consolidate debt can further cause your credit rating to plummet so be very careful and make sure that you read all details before signing up for a credit card balance transfe
Debt Consolidation Loans
Debt consolidation loans are loans that are offered by credit unions and banks specifically for the consolidation of debt. Their terms can vary widely but a key detail to watch out for is a longer repayment timeline because that means you’ll end up paying a lot more despite lower monthly payments.
Home Equity Loans
A home equity loan is a loan you can take using the equity you’ve built up in your home as collateral. Because this is a secured loan, you can enjoy a lower interest rate using this than using the other types of debt consolidation loans listed here. You just have to be very careful and make sure that you’ll be able to pay because choosing this means putting your home on the line. You need to be discerning and really look for a lender that’s not out to take your home.