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Debt Consolidation Loans

Consolidating your debt in a single low-interest debt consolidation loan can save on interest payments and speed the process of paying off debts. The important thing is that you make the choice now to reduce your debt. The more you wait, the more cash you stand to lose. Luckily, there are many forms of debt reduction and debt consolidation loans and options available.

If you are a homeowner, a few examples of the debt consolidation loans you can choose from include a cash-out loan, a home equity loan, or a home equity line of credit.

  • Cash-out Loan: A cash-out loan allows you to refinance your home while pulling cash out at closing. For example, if you owe $100,000, you could refinance for $120,000 allowing you to get $20,000 (minus closing costs). The money can then be used to consolidate your high interest debt.
  • Home Equity Loan: A home equity loan is a loan that uses equity in your home as collateral. Most home equity loans are second mortgages. The money can be used for whatever purpose you choose, including debt consolidation.
  • Home Equity Line of Credit (HELOC): Instead of being setup as a typical home loan for a fixed dollar amount, a HELOC is setup as a line of credit with a maximum credit limit. This allows you to use the money as you need and avoid paying interest on the entire amount. Again, a HELOC is typically a second mortgage and can be used to consolidate high interest debt.

If you are not a homeowner, the best option for you may be an unsecured personal loan. Unsecured personal loans usually place greater emphasis on your credit history but are available to you regardless of home ownership status.

Debt Consolidation Questions

What are Debt Consolidation Loans?

It is a process by which some or all of your debts are consolidated into a larger one, and you pay one monthly payment.

Does a Debt Consolidation Loan just mean more loans?

No. Debt consolidation works by combining multiple loans into one, thereby reducing and eliminating interest, penalties, and late fees.

How can I benefit from a Debt Consolidation Loan?

You make one monthly payment, which is lower than all the combined payments you make to all your creditors. The interest rate you pay is lower, resulting in more of your payment going directly to the principal. In addition, combing all your high interest bills into one easy payment takes the hassle out of bill paying.

How much can I reduce my current monthly payments by?

This will depend on how much you are currently paying and how long you plan to take in repaying the new loan. With this said, reductions in monthly payments can be as much as 75%.

How much can I borrow?

There are a variety of factors, which dictate how much you can borrow. While your income and, for secured loans, the equity available in your property are important, the most important factor is your ability to repay the loan.

Over what length of time can I spread my repayments?

This is entirely up to you and will depend on how much you can afford each month. You should remember your original goal-to get out of debt! The longer you take to repay the loan, the more you end up paying in interest.

Can I use the loan for more than debt consolidation?

Yes. Consolidating your existing credit allows you to free up money for other things. You can borrow extra for that new car, boat, or caravan. You can even pay for your dream holiday or that home remodel project. The choice is yours, as long as you do not over-borrow.

What if I have an accident, am ill or get made redundant?

You can always get optional accident, sickness, and unemployment cover if you want the added peace of mind this brings. Life assurance is also a good option.