Debt Consolidation Loan Options to Reduce Debt

How a Low-Interest Debt Consolidation Loan can Reduce Debt

A lot of consumers use credit for various reasons. Most of the time they use their credit to make large purchases, such as cars and houses. But what most people fail to realise is that getting out of debt is hard and time-consuming.

When a person borrows more than they can afford to repay every month, or when the fees and interest rates add to the financial burden, it might be the right time to consider their options. And for these situations, many financial advisers recommend getting a debt consolidation loan.

A Debt consolidation loan for people with bad credit allows a debtor to combine all loans into one. It provides an individual a way to lower interest rates and other fees, which can eventually lead to getting out of debt. When a consumer opts to consolidate one’s debts, then the individual will have to repay one single loan, instead of worrying about several loans at a time.

A debt consolidation loan can help a person benefit from lower fees and interest charges.  However, one should also consider the early pay out fees and refinancing costs from the existing loans. That way one can compare whether consolidating loans will result in real savings.

Consolidating debt is the process of combining several loans into a single loan. People often use this process to reduce their current expenses and make their debt more manageable. Dealing with only one loan is much easier than having to remember to pay many.

Some of the loans that can be consolidated into one include credit card, personal loan, and store card, just to name a few.

With a debt consolidation loan, one doesn’t need to deal with different interest rates. There’s no need to pay multiple fees either. That can bring lots of savings to an individual and make life more enjoyable.

When to Consider a Debt Consolidation Loan

While a debt consolidation loan for people with bad credit is recommended for some, there are some cases in which it might not be the best solution for reducing one’s debt.

If an individual has trouble keeping up with the monthly repayments, then consolidating can help decrease the number of repayments. It can also simplify the debt management process. It is helpful when you have reached the limits of your credit cards, or is already near the limits.

One should consider consolidating debt if one has a low-interest credit with available balance. A balance transfer to the credit card is an option that one should think about. There are cards that allow payment of zero percent per year on a set period on transferred balances. It should be considered if one has a large credit card debt, or if one wants to combine various types of credit.

Another factor to consider is if one has equity in one’s home. If the interest rate of the home loan is lower than that of a credit card or personal loan, then consolidating other debts to the home loan is a feasible option that one should think of, provided there’s enough equity in the mortgage.

Debt consolidation loans for people with bad credit rating are recommended especially if the total amount of the loans is huge. It will help them take back control of their financial situation.

There are some lenders who specialise in providing consolidation loans to people with bad credit. Often they will lend to people who have a poor credit history.  When they do, the interest rate might be a little higher.  This is to offset the perceived risk.

Debts That Can Be Consolidated

There are various types of debts that can be included in a debt consolidation loan. Some of the types of debt that can be consolidated include:

  • Credit Cards. People with large outstanding balance on their credit cards can opt for a personal loan to pay them off. This is often recommended for people who want to combine their credit card with another type of loan. It’s also a suitable alternative for people who are not candidates for balance transfers.
  • Personal Loans. One of the most common types of loan that is consolidated is a personal loan. People can apply for a debt consolidation loan to combine two or more personal loans or refinance one of the personal loans to something with a much lower interest rate or fees.
  • Store or Charge Cards. There are times when people lose track of how much they spent on their charge or store cards. Once the amount accumulates, it can take them by surprise and lead to repayment challenges. One option is to consolidate them with other debts.
  • Other Types of Credit Accounts. There are other types of debts that can be part of a debt consolidation loan. These include debts to utility companies and private loans, just to name a few. Consult with a credit provider to determine what type of debt is allowed with the consolidated debt.

Different Loan Options for Consolidating Debt

debt consolidation loanWhen opting to consolidate debts, there are several options to choose from. One of the choices is to pay off the credit card balance if a transfer is not an option. There are cases in which an individual has several credit cards and want to transfer the balance from high-interest credit cards to a different one. But there are times when one is not qualified for low-interest cards within the promotional period. When this happens, then consolidating debt to is the only option to pay off the credit card debt.

Debt consolidation is also an option to pay out or refinance an existing personal loan. A personal loan is considered an unsecured line of credit and that’s why it is important to look for a fixed interest rate that’s competitive. Keep in mind that one normally needs to have good credit rating to get an approval for a personal loan.

Lastly, rolling one’s debts into a home equity loan, which is a secured line of credit that uses the equity of the home as collateral, can be an excellent option for consolidating debt. Getting a home equity debt consolidation loan can greatly reduce one’s debt, especially if it has a lower interest rate and lower fees. Just keep in mind that while a home equity loan has lower interest rates, the fees can be higher although it’s often irrelevant because you already pay the fees on your home loan. One also risks losing one’s home if one defaults on repayments.

As you can see, a debt consolidation loan is worth considering if you’re struggling to pay your debts.  Some lenders will consider your application even if you have a poor credit history.  Fill in the form on this page and one of our debt consultants will work out how much you could save by consolidation your debt.

Here’s a related article: Debt Consolidation Loans and their Benefits

You can also learn more about debt consolidation on Wikipedia