Consumer Debt Consolidation: A Way Out of Debt

If you’re like many people, you worry that your debt is so big you’ll never pay it off. Every

month you pay what you can, but paying the minimums on multiple cards and loans doesn’t

improve the situation. Consumer debt consolidation may be the solution you need to help you get

out of debt and stay there.

Types of Consumer Debt Consolidation

Consumer debt consolidation comes in four primary forms:

* Personal unsecured debt consolidation loan

* Credit card debt consolidation

* Cash-out home refinance

* Home equity loan or line of credit

Each form has positives and negatives. You may find that one or two types would be more

appropriate for you. Your goal is to find the debt consolidation solution that is best suited to your

financial situation.

Personal Unsecured Debt Consolidation Loan

If you don’t own a home, you could apply for an unsecured debt consolidation loan. That means

that you don’t put up any collateral for the loan. You pay off all your debts with the consumer

debt consolidation loan, which leaves you with one monthly bill for the new total. You must

have excellent credit and a stable income to qualify. You might also discover that the interest

rate is the same as the current rate on your credit cards, which wouldn’t save you any money.

Credit Card Debt Consolidation

The average person receives one or two credit card offers every day. If you have high credit card

balances, you probably receive offers for low-rate balance transfers. If the credit line is large

enough, you could transfer all your debts to one card. Before you accept the loan, review the

initial rate, full rate, rate expiration, and transfer fees. If the rate is 7%, but only lasts six months

and has a 3% transfer fee, you won’t save much money. On the other hand, a rate of 0% for 15

months with a 3% transfer fee could be just what you need to get out of debt without adding new

interest charges. Both a personal loan and consumer credit debt consolidation can reduce your

credit score, but continuing to be plagued by debt will hurt you more in the long run.

Cash-Out Home Refinance

If you own your home and it’s now worth more than the mortgage balance, a cash-out home

refinance is a better option than either credit card debt consolidation or a personal unsecured

loan. By refinancing, you may be able to reduce the interest rate on your home, while also

pulling out enough cash to pay off your other debts. As with your original mortgage, the interest

on the refinanced mortgage is tax deductible, which would increase your savings. When

refinancing, beware of high refinancing fees. You should also avoid borrowing more than the

value of your home or borrowing so much that you can’t afford the mortgage payments. Both

could put you at risk of losing your home.

Home Equity Loan or Line of Credit

A home equity loan or line of credit also draws on the equity in your home. This is the best

option for people with a low, fixed mortgage interest rate. Like a first mortgage, the interest on a

second mortgage or home equity line of credit is tax deductible. A home equity loan allows you

to borrow a fixed amount of money without altering the first mortgage. You would simply have

two mortgage payments every month. A home equity line of credit (HELOC) gives you a credit

limit that you can borrow against within a certain time period, often ten years. You can borrow

as much or as little as you want, whenever you need, as long as you don’t exceed the credit limit.

Unfortunately, some people use HELOCs as personal credit cards, which puts their homes in

jeopardy. While using a HELOC to pay off other credit cards can save you money and help you

get out of debt, avoid drawing on the line of credit for luxury purchases and other non-

necessities.

Consumer debt consolidation can help you get out of debt more quickly than continuing to pay

the minimums on all your debts. If you’re serious about getting out of debt, you can find the right

solution to your debt problems. For more articles on Cons. Debt Consolidation, visit Bills.Com