Reasons to Consider a Debt Consolidation Loan
A debt consolidation loan generally consists of the replacement of multiple loans with a single loan, with the new loan featuring a lower interest rate, a lower monthly payment and a longer repayment period. For many people, the goal of debt consolidation is paying off other higher interest rate debt and reducing the total number of bills paid each month.
Debt Consolidation Loans Options
There are different types of loan programs to accomplish a debt consolidation. The most popular are:
- Cash out refinance loans
- Second mortgage loans
- Home equity line of credit ( HELOC)
- Home equity loan
- Credit card balance transfers
Debt Consolidation Loans: The Advantages
Debt consolidation loans are popular because:
- Debt consolidation loans can reduce the number of bills and due dates to manage each month.
- Debt consolidation loans may lower the overall effective interest rate on a borrower’s total debt from double-digit interest rates to single digits.
- Debt consolidation loans often relieve a budget crunch by reducing overall monthly debt payments and freeing up cash to use for other household needs.
- Some debt consolidation options – such as cash out refinance and home equity loans – may offer tax benefits. (Consult your tax advisor for details.)
Debt Consolidation Loans: The Drawbacks
If you’re thinking about consolidating your debt, it’s probably a good idea to avoid some of the common pitfalls. What are some risks involved with debt consolidation loans?
- If you take out a debt consolidation loan without changing budget and spending habits, you might be at risk of plunging even deeper into debt.
- In order to generate a lower monthly payment, most debt consolidation loans extend the length of time the borrower has to repay by years. Even with lower interest rates and possible tax benefits, the ultimate cost of borrowing may be higher in the form of greater total interest expenses paid.
- Debt consolidation loans can reduce home equity-emptying an asset that could be better used to handle true emergencies.
Debt Consolidation Loans: The Professionals
Don’t take chances with your debt consolidation loan. Our experienced home loan consultants can help you with your questions and run the numbers. If you need additional information about debt consolidation, call 1-888-284-7596 for a FREE, no-obligation consultation.
