- Those interested in a debt consolidation loan may evaluate the differences among several options. Consumers without a home for collateral would need to acquire a personal loan for debt consolidation. Personal loans typically carry a higher interest rate than the other options available for debt consolidation. Other options include taking out a home equity line of credit or loan and refinancing your mortgage. Home equity lines of credit, home equity loans and refinancing all use your house as collateral. Loans and lines of credit related to home equity represent a new loan taken out using your house as collateral. With refinancing, you take out a larger mortgage on your home and receive the difference between your new mortgage and current mortgage as cash to pay off debts or other expenses and home improvements.
- To decide if a debt consolidation loan will help or hurt you, first add up all of your debt and take special note of the interest rate of each debt. Then take a look at all of the options available to you by speaking with your local bank, credit union or mortgage lender. Gather information related to the interest rate and loan terms associated with each option. The goal is to make the decision that results in a lower monthly outlay of income toward your debt. Typically, debt consolidation will consolidate your debt at a lower interest, resulting in lower monthly payments.
- Keep in mind that defaulting on payments can end up costing you your home when you use it as collateral for a home equity line of credit or loan. Look at debt consolidation as a way to pay off high interest debt. Use it to get back on track financially. Avoid opening up new credit cards and running up more debt after you consolidate debt.
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