Are you deciding on debt consolidation loans that will ease up the burden of making monthly and multiple debt payments? If so, then this guide on the types of debt consolidation loans is for you. Before anything else, let’s have a quick preview on what a debt consolidation loan is and how it works.
What are debt consolidation loans?
These loans work by letting you combine debts with the highest interest and pay them using one loan with a lower interest rate. By combining debts, you’ll be able to lower monthly payments and afford debt bills. But if you’re new to this, you must know the types of debt consolidation to help you select on which option is right for you.
It is one of the loans to use if you’re qualified to borrow a significant loan amount; this is an unsecured loan type, which payments are fixed over a given period of time. However, not all people can qualify for this type of loan, and in approval for people with a bad credit score, they need to settle for a higher interest loan.
Credit card balance transfers
Another type of debt consolidation to use, credit card balance transfers move a credit card’s balance into a single credit card. This type usually comes with a lower interest rate in the event of promos. The promotional rates, however, expire within a time period. Thus, you need to know when it is expiring and when the regular rate is taking effect.
Before using credit card balance as a loan for debt consolidation, you also need a large credit limit in order to cover or hold the entire credit card debt. However, your credit score will be put on the line and it will be hit using this type of loan because putting a huge sum of debt into the credit card impacts your score and your credit usage is going up.
Home equity loan
This type of loan uses home equity as the collateral in the loan, but it requires that you have a fair amount of home equity and you have a good credit score. While its interest rate may be lower than any other types of loans, it puts your home on the line for the credit card debt, meaning you’ll face home foreclosure if you don’t pay up or if its payment goes out of control and you cannot pay.
Debt consolidation loans
The loans can be offered by credit unions or banks, and they’re main objective is combine your debts into one. Take note that these types of loans are different. You may want to consider debt consolidation counseling for guidance on which type of DC loan may be for you based on your situation. But generally, these loans come with a lower interest rate than what you’re paying now. A lower interest rate, however, is at times achieved with an increased period of repayment.
Debt consolidation loans getting rid of debt, but it just shuffles it around in order to make monthly payments easier, allow you to keep track of these payments and reduce events of forgetting payment for an account. With a plan, you’d feel as if you have less debt and less stress in the process. Consult a debt consolidation pro for guidance today!