Debt Consolidation Loans

What is debt consolidation and why should you be interested in it? If you have many loans or debts, such as credit card debt, debt consolidation allows you to combine all of those debt into one low payment.

Usually the process of combining your debts results in a couple of benefits. First, the consolidated loan often can feature a lower interest rate than the individual loans. Also, it's far simpler to manage and keep track of just a single loan. There's only one payment you need to make each period, and only one creditor you need to deal with.

Do you qualify for a debt consolidation loan?

This is an excellent question. Not everyone will qualify for a debt consolidation loan at a lower interest rate, since it means your new creditor will be assuming all of the risk of your individual loans. They must be convinced that you are able to pay these debts.

Are you a homeowner?

Debt consolidation is considerably easier if you are a homeowner who has equity in their home. One of your available options is a cash-out refinance. Refinancing your home and taking equity out can provide the funds you need to pay off your existing debts, as well as fund any other miscellaneous expenses you may have, such as home remodelling, college tuition, etc.

Interest rates on these types of loans tend to be more attractive, since the loan is secured by the existing equity in your home. Be especially wary, though, of converting your unsecured debt into secured debt. What this means is if you use refinancing as a means to eliminate, say, your credit card debt, it puts you in far worse shape should you default on the loan. Whereas defaulting on credit card debt will ruin just your credit score, defaulting on a refinanced mortgage will not only ruin your credit report, but you stand to lose your home as well.