The Basics of Debt Consolidation Loans |
Many people have the need for debt consolidation.
But what are the choices when it comes to debt consolidation
loans? You actually may have more options than you think.
Take a look at a few of those before you jump into a
plan that isn’t a good long-term solution. |
| |
Bankruptcy |
| Unfortunately, this is the first thing
many people consider when they’re having trouble
meeting monthly payments and dealing with a mountain of
debt. While there are certainly times when bankruptcy
is the correct solution, don’t jump immediately
to this conclusion. Remember that your bankruptcy is going
to be with you for many years. The bankruptcy notation
will appear on your credit report and make it difficult
to obtain any credit opportunities. Also, you’re
likely going to be making payments on a bankruptcy settlement.
It’s certainly better to make other arrangements
if possible. |
| |
Home Equity Loans |
The home equity loan is arguably one
of the best and most available options for anyone seeking
to consolidate debt. Home equity is the value of your
home when weighed against what you owe against it. Simply
take the market value of your home and subtract whatever
you owe, usually your mortgage amount. Remember that
some lenders won’t loan up to 100 percent of the
value of your home. Lenders may limit the total amount
owed on a piece of property to 80 or 90 percent of the
value.
Home equity loans are typically easier to get because
you’re putting something of value – your
home – up as collateral. If you don’t make
your loan payments, the lender has a way to recover
at least some of the money you received as proceeds
of the loan. |
| |
Secured Loans |
| If you apply for a secured loan, you’ll
be putting something up as collateral. It could be a car,
boat, stocks or some other item that has real market value.
If you don’t repay the loan, the lender can take
the items used to secure the loan and sell them to recover
the amount of the loan. |
| |
Personal Loans |
| This is sometimes more difficult to secure
because it’s simply your word against the amount
of the loan. In this case, you’re not putting anything
up for collateral. You’re asking the lender to trust
that you’ll meet the terms of the loan. A credit
card is an example of a personal or unsecured loan. |
| |
Using Credit |
| This isn’t usually a long-term solution,
but can buy you some time. You can use one credit source
to pay off another. The advantage is that you’ll
be making only one payment instead of multiples. The downside
is this can become a habit that does nothing for your
long-term debt. |
