Debt consolidation is a solution for those who want to lower the interest rates on their bills, reduce their
monthly payment obligations or simplify their finances.
What is debt consolidation?
Debt consolidation is the act of getting one loan to pay off several loans. By doing so you only have to make
one monthly payment. If the length of the debt consolidation loan is longer than the loans you are consolidating, then
you should be reducing the amount of money that you are paying each month. If the debt consolidation loan is used to pay off
credit cards, you will typically be paying a lower interest rate than you were on the credit cards, which will save you
hundreds (maybe thousands) of dollars annually on interest charges.
Debt consolidation can be accomplished by the following:
- Cash out Refinance:
If you are a homeowner and have equity in your home, you can borrow money against it when you re-finance your home loan.
The interest on the loan may be tax deductable. If you currently have a low fixed interest rate on your home loan,
you may not wish to choose this option for debt consolidation if prevailing interest rates are higher.
- Home Equity Loan:
With a home equity loan you can accomplish debt consolidation and not have to compromise the low rate you may already have on your current home loan.
The interest rate is separate from your current mortgage and the interest charges may still be tax deductable.
However, if you are not a homeowner or do not have much equity in your home, this is not a viable option for you.
- Debt Consolidation Service:
With these services you do not need to have a home to accomplish debt consolidation. In fact, many people use
these services so they can get their credit to a managable state so they can buy a home in the future.
With a debt consolidation service you would make one monthly payment to an agency, who would use that money to make
all of your various loan payments for you.