Consolidation Loan Choices Make Choosing Easier

By Daniel Atolben

Debt consolidation loans were created solely as a means for putting all the debt together, or consolidating it, and lump sum loan is made instead of separate payments to individual creditors. Instead, the bank takes your debt total, and through many different types of loans, can, with the appropriate credit, aid in the immediate repayment of all creditors. The bank pays off the debts, and you pay the bank.

A very good reason to do this is when the interest rate on the loan is a fixed rate that is less than the typically higher rate charged by credit card companies and other creditors, especially if you have recently begun to pay your credit card bills later and later and the fees for such activity are beginning to mount.

A possible consideration for debt consolidation is a straight loan. This is equivalent to a home or car loan, but with no collateral. You are simply borrowing a set amount to pay a specific debt. Again, the rate should be noticeably lower than the interest rate being paid to the credit card companies. Not everyone who applies for a straight loan will qualify. There are serious guidelines to protect the bank from someone who may default on a loan that the bank has no way of recouping without your cooperation. Usually this type of loan is reserved for consumers with the highest credit rates.

Home equity loans are also valuable to a consumer interested in debt consolidation. If your home is worth more than the amount of the loan you are paying for it, the difference may be borrowed from the bank and used to pay creditors. These loans are restricted by the amount of equity in the home, and dependent upon good standing in the first mortgage. Often these loans are separate from the first home mortgage, and the rate may or may not be the same for each loan. As long as the interest rate is lower in the equity loan than the credit card rate, a home equity loan can be a good decision.

A total home refinance is also a possibility. If your home has been paid down considerably or increased in value quickly, and if the rates have gone down enough to justify the fees for refinancing, an whole new home mortgage may be established, with the extra debt added in to the value of the loan.

While escaping from a debt ridden situation can seem like a struggle, debt consolidation loans can be invaluable to a consumer who would like to reduce the number of payments that they make and interest that they pay per month. Consolidation loans stream line the payment process, no matter which method you choose.

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