Organize and Eliminate Debt through Debt Consolidation Loans
Many millions of people are strapped with the burden of tens of thousands of dollars of debt in the form of student loans and outstanding credit card balances. When auto loans and home mortgage debt is factored in, many people find that their outstanding debt easily reaches a six digit figure. This significant amount of debt not only is a source of stress and anxiety for so many people, but it also is one of the driving forces that keeps people from retiring years before they otherwise would be able to, too. In many ways, such debt prevents people from living the life they really want to lead. A simple solution to tackling a significant debt issue is to organize and eliminate that debt through debt consolidation loans.
Different Consolidation Options
There are several types of debt consolidation options you can consider. Often there is no right or wrong answer to consolidating debts, but rather the decision about which to choose is a personal one based on the unique structure of a person's specific debts. Here are some options to consider:
Basic Installment Loan
Home Equity Line of Credit
Cash-Out Refinance of Home Mortgage
Each of these solutions will have their own unique benefits and drawbacks, and these should be considered fully.
Installment Loans - Installment loans are often used for credit card debt consolidation. These are easily obtained through a local bank or credit union. Unsecured loans often have a higher interest rate than those that are secured by collateral such as a car, jewelry, or another significantly valuable asset, and yet even unsecured loans generally offer a lower interest rate than most credit card debt today carries. Further, while the debt on a credit card is revolving and can taken eight or ten years to pay off, if not longer in many cases, an installment loan can be obtained for a fixed term of three or five years. When the loan is paid off, the debts are entirely eliminated. Generally, this is a loan that will lower monthly payments and allow you to pay principal off more quickly.
Home Equity Line of Credit - For homeowners who have a significant amount of equity built up in your home, a home equity line of credit may make sense as a method of credit card consolidation. With this method, you turn high interest credit card debt into a form of debt that is tax deductible and is held at a lower interest rate. Generally, in addition to enjoying greater tax deductions through a home equity line of credit, you also enjoy lower payments and the ability to pay debt off more quickly. However, if you do pursue this option as a means to pay off revolving debts, you should take steps; you will want to avoid continuing to make draws on that line of credit for other purchases over time.
Cash-Out Refinance of Home Mortgage - This is another option available to homeowners. Where a home equity line of credit generally services as a second lien on your home in many cases, this is a refinance of your first lien. Further, this type of lien is not a line of credit that you can draw from in the future, but rather you are provided with a one-time distribution of funds when you close on your new loan. These cash-out proceeds can be used to pay off your debts, and in this way, you can enjoy a fresh start financially.
Perhaps the biggest risk that comes with consolidation loans of any kind is the risk of charging credit cards back up after the balances have been transferred. This can result in you not just carrying the transferred debt but also carrying that new debt, too. So it is possible for some people to get burdened with additional debt after a consolidation loan. To avoid this, you will want to ensure that you do close all accounts that you have paid off.