DEBT CONSOLIDATION TYPES

If you have taken multiple loans and are tired of paying variable interest rates to multiple lenders, you can ease your situation by opting for a consumer debt consolidation loan. Basically you take one big loan to pay off the multiple loans. The advantages of a consolidated loan are obvious. A single loan means you have to pay a lower and fixed rate of interest and also you just have to deal with one lender.

You can opt for the following types of consolidated loans:

Personal unsecured debt: As the name suggest, this is an unsecured loan and is highly useful for people who do not have any collateral to pledge. However, you must have a stable monthly income to qualify for this loan.

Credit card debt consolidation: If you have more than one credit card with high credits on all, you could transfer all the debts into one card. While applying for a credit card debt consolidation loan, you should check out factors such as the fixed monthly payment, the life span of the loan and the gross payment amount including interest. Finally, you should also consider the effect, if any, of the debt consolidation loan on your credit rating.

Home equity loan: A home equity loan enables you to borrow fixed amount of money against your property without affecting the first mortgage. The only thing is that you would have two mortgage rates to pay every month instead of one. The home equity line of credit (HELOC) gives you the advantage of borrowing some money for a particular period of time against a credit limit. HELOC functions like a credit card and the advantage is that you need to pay interest only on the amount you have borrowed and not on the total amount that is sanctioned. The best way to use HELOC is to borrow money against your credit limit and utilize it to pay off your earlier debts, instead of splurging them on luxuries.

Keep in mind that the repayment period of a debt consolidation loan can run for about 20-30 years. This naturally means that it will be quite some time before you attain financial freedom but on the plus side you would need to pay lower monthly instalments and it would not affect your credit ratings.