DEBT CONSOLIDATION
LOANS IN 60 SECONDS

Homeowners have a home equity loan at their disposal as one tool for debt consolidation. This loan uses the equity in the home as collateral. To qualify for this loan, the homeowner must have a substantial amount of equity in the home and a good credit score.

Home equity loan interest rates are usually lower than rates offered by other types of loans. This comes with a big tradeoff- the home is put on the line for debts like credit card balances. If the borrower defaults on the loan, foreclosure may result.

If credit cards represent the majority of the debt, consumers may find that a credit card balance transfer provides them with the debt consolidation help they need. This requires qualifying for a credit card that offers a low interest rate or an interest-free introductory period.

Balances on higher interest rate credit cards are transferred into this lower rate card. Though this is not truly a loan, it represents a smart way for some people to lower their repayment costs for outstanding debt.

The credit limit on the lower rate card should be sufficient to accommodate total credit card debt. Consumers should be aware of when a promotional rate period expires and realize that placing too much debt on one card can negatively affect the credit score.

The increase in credit utilization may affect this score, especially if the resulting balance is near the credit limit on this card. Personal loans can serve as debt consolidation loans because these unsecured loans can be used for nearly any purpose.

A personal loan features fixed payments made over a designated period. The loan can be used to pay off debt balances and then this funding can be repaid by the consumer over time via monthly payments.

A personal loan will not be the answer for everyone. Consumers with poor credit may have difficulty qualifying for a personal loan or may only qualify for a loan featuring a high interest rate.

Before agreeing to the loan, they should verify that the interest rate offered is lower than that associated with the outstanding debts. Otherwise, it does not make financial sense to consolidate debt using this tool.