Most of us have gone through the situation of being in debt due to some reason, at some point of life. In some cases, debt consolidation loan can be handled easily while in others, it can take its toll, give sleepless nights and high blood pressure. This article helps create a basic understanding of debt consolidation and ways to do it with special reference to home equity loans for consolidation. First of all let us have a discussion about debt.
Why people incur debt
People get into debt due to numerous reasons and it can prove to be quite a devil if you are unable to repay timely or not at all. Once into it, it is difficult to get out especially for people who lack self control. Sometimes it is just due to exaggerated life styles, poor planning and in many cases due to unforeseen, urgent and unavoidable need for money. Public obtain instruction, home, vehicle or medical loans etc and may not be able to repay them. Attractive credit card offers which keeping luring people have also added to the habit of being in debt. It is easy to buy anything with credit cards and worry about repayments later. Whatever the reason for debt, getting out of big ones can be problem and there are many ways in which people aim to tackle debt. The most excellent option is definitely to be well planned and avoid debts. However, debt is fast becoming a reality of life and one has to deal with it.
What is debt consolidation loan
Sometimes people pile up several kinds of debts at different stages of life for education, property or other planned and unplanned expenses. Consolidation of loans can help decrease immediate pressure of repayment. It is a strategy of combining all existing debts under a single loan by a consolidation agency. The company pays off all existing debts and you have to pay them under a new distinct loan. There are many companies who do this. Pros and cons of selected companies must be weighed before going in for consolidation. There are several advantages of this process.
» Monthly payments are reduced.
» There is only a single monthly bill to keep track of.
» Nagging calls from lenders and mental pressures are reduced.
» Agencies in addition give advices on ways to keep away of debt.
» Interest rates are usually lower than paying separately to each lender.
When debt amounts are soaring, interest rates for consolidation increases. One must attempt to seem to be for lowly possible interest rates. Negotiations can be done with credit card companies to get low rates on balance transfers to a solo credit card. One excellent option is home equity loans. Money can be borrowed not in favor of property and is easy to get.
Ways to debt consolidation loan
Debt consolidation can be done in special ways throughout different capital. One has to recognize the pros and cons and also look at personal preferences to reach an assessment. You can:
» Take personal loans which may be unsecured, which way there is no need to assurance any asset. This is careful to be a good option with smaller number risks.
» Transfer all credit card loans to a single credit card but understand each ones fee and interest rates very carefully.
» make use of money against home except in case of defaulting, your home may get seized.
The benefit lies in lower interest rates and tax settlement
Loans can be secured or unsecured with advantages and disadvantages. Loan not in favor of property is recognized as secure. It gets you lesser interest rates, higher loan amount, easier installments and longer time period for repayment. The big question is that home or property is at risk and there is possibility of losing it. In case of unsecured loans, there is no necessitating for pledging property, hence any danger of losing it. However, you might have to face high interest rates and installments within a short span of time.
Agreeably, out of these ways suggested, the choice of consolidation depends quite on your repayment power. If not at all sure of income, you must be extremely careful especially incase of home equity loans.
Considering Home Equity Loan for Consolidation
Home loans have all advantages and disadvantages of protected loans as listed by now.
There are two kinds of home loans. One is known as home equity loan. An amount of money is on loan and is repaid monthly over a fixed term. The next category is home equity line of credit. Like a credit card, a limit is allotted and money can be withdrawn whenever needed. After the limit gets more, money can be withdrawn, after repayment.
Experts advise home equity loans as improved alternative for debt consolidation. The biggest benefit is of tax rebates on the interest paid. Interest paid is also lesser as compared to further unsecured loans. This is helpful especially if you need to give off an existing loan with very high interest rates.
While going in for home equity loan, it is a good plan to compare a few things between special lenders such as:
» Upper limits of money that can be borrowed.
» Compare floating and fixed rates of interest, validity period and likelihood of changes within your term. Also ask if plans can be switched later.
» Fee schedules for processing, opening, closing and transactions.
» Rules for renewals or extensions.
» Possibility of negotiations.
Ask yourself a number of questions ahead of making a choice
» Is interest rate of consolidated loan lower than what I am already paying
» Are conditions and circumstances suffocating
» Do I have a good planning to keep clearing off the loan
» How much time will I realistically need to pay off loan
» Will I be able to stop taking new debts
» Finally, which option suits me the best
Go ahead with the strategy and company who has answers to these questions and will solve your problems. Choice of consolidation depends on individual preferences as well as the gravity of debt. Debt consolidation only ease out immediate pressures and should not be seen as freedom from debt. One must study the very well print cautiously as everything now lies with one lender. It is better to approach banks and consolidation companies with high credibility rather, even if their interest rates are slightly higher