Types Of Loans To Pay Off Debt
There are many circumstances under which people opt to apply for a loan
. One of the reasons is to
pay off debt. Sometimes it can be quite difficult keeping track of our many creditors and making so many different payments at any given time. To solve this, you might consider taking one single loan to pay off all your other debts. This type of loan is generally known as a debt consolidation loan. As the name suggests, a debt consolidation loan is a loan you get to assist you to pay for your other debts. There are many types of debt consolidation loans that you may opt for but you may want to research your options before deciding upon the type of loan you prefer. This is because not all types of debt consolidation loans may be suitable for your specific financial situation to help you
pay off debt.
One of the more popular loans of choice is the home equity loan, otherwise known as a second mortgage. The home equity loan falls under the category of secured debt consolidation loans. In general you may be taking a loan based on the equity of your home and would be putting your home up as collateral. In order to take this particular loan, you may want to make sure that you have enough equity in your home to pay off your debts and check that your credit score is above the minimum required score. This is because lenders may generally charge lower interest rates to applicants with high credit scores as opposed to those with low or poor credit scores. A home equity loan may be quite risky because of the possibility of you losing your home to your creditors if you continuously fail to make payments.
A home equity line of credit is based upon the same concept as that of a home equity loan with your home being put up as collateral for the loan you are applying for. The difference is that instead of getting your money in one lump sum, you may get the money in several small amounts as and when you need it. Normally your lender may provide you with a credit card or cheque that you use when
paying off debts and each time you swipe your card or issue a cheque the amount will be deducted from the total amount of your loan. However, like a conventional home equity loan, you still run the risk of losing your home should you default on the payments of your loan so it may be a good idea for you to be sure that you are able to make all due payments.
When it comes to
paying off credit cards, you may opt for a credit card balance transfer loan. The basic concept is that you may apply for a new credit card that allows you to transfer the balances from your other credit cards to your new credit card. Instead of making several different payments to different creditors, you may now better manage your debt as you will be making payments to only one creditor. Usually this type of credit card option comes with an introductory low interest rate for a period of time so you might want to take that into consideration before applying for a balance transfer credit card. You may be able to negotiate a longer low interest introductory period if you play your cards right. It may also be a good idea for you to check the credit limit for your new card so that it may be able to hold the balances of your other credit cards without exceeding its limit.
Each type of debt consolidation option carries its own risks and benefits. It is generally up to you to weigh your options and make a decision based on your particular financial situation. However, you may want to remember that in many cases, debt consolidation loans may not be quick-fixes for your existing debts and some even end up keeping you deeper in debt due. So if you decide to apply for a debt consolidation loan, it may be wise for you to also curb your spending habits to make sure you do not end up with more debts than before.
by: Ask Bill
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