The aim of debt consolidation should always be to help you pay off your debts cleanly, efficiently and more manageably. There are basically four debt consolidation strategies. These are balance transfers, personal loans, home equity loans and cash-out refinancing. Before committing to any of these you should consult a mortgage broker or financial adviser.
Using the balance transfer option you replace multiple debts with a low-interest loan. Your lender gives you a good introductory rate. This temporary low-rate period of perhaps twelve to fourteen months is used to pay off as much debt as possible.
The personal loan option consists of your lender giving you an unsecured loan, usually with a fixed interest rate to stabilize your finances. There is no collateral. The bank trusts you to make the repayments. However, because the loan is unsecured, interest rates are higher.
Cash-out refinancing is a form of debt consolidation where the lender allows you to take out a new mortgage, larger than your existing mortgage. You receive the difference as a cash sum. The loan is secured by your home so the monthly payments are less. However, if you ever have difficulty making repayments your house becomes endangered.
Home equity loans are also known as second mortgages. Similar to a cash-out repayments, you trade equity in your house for some quick cash. Debt consolidation occurs, merging your debts into one loan with a variable or fixed rate. Using your house to secure further debt however carries certain risks.
No comments:
Post a Comment