Finding the Low Interest Debt Consolidation Option
You have several options when considering low interest debt consolidation loans. These include the low interest debt consolidation loans offered through banks, credit unions, consumer credit counseling services and online lenders. Each has its own benefits and disadvantages that you should consider carefully. First, what is a low interest debt consolidation loan? A low interest debt consolidation loan is one that has a lower monthly payment and interest rate than the payments and interest rates you are currently paying on your credit cards. Usually the average credit card interest rate is around 16%, but people with more significant debt may pay as low as 10% or even less.
Debt consolidation loans are often offered by financial institutions with low or no interest rates to help consumers who can not keep up with their high-interest credit card debts. In most cases, this type of consolidation is a second mortgage or home equity loan that pays off all your credit cards and other high-interest debts. It then replaces them with a single lower interest loan. This helps you to reduce your total debt, which will improve your credit score.
A debt consolidation company may also offer a home equity loan or refinance a home to help you consolidate credit card debts. These types of loans may not require collateral. Collateral may be your car, boat, electronics, stocks or other properties. If you do not have any collateral, you must still make payments to make sure you get the lower rates and better terms you want.
Many people are unaware that they qualify for low interest debt consolidation loans and home equity loans. Your debt ratio is also an important factor in qualifying for these types of loans. Your total outstanding debt including installment debt such as credit cards, personal loans, auto loans and other lines of credit. This ratio is used by the lender to calculate your risk. If your ratio is high, you are more likely to default on your loan.
You can research online to find the best rate, terms and companies to apply with. When you apply for a low interest debt consolidation loan through an online lender, you will need to give them information about your income, assets and debts. They will then review this information and determine which lender would be the best match for your situation. Some companies will run a credit check on you to determine whether you are a good candidate for the consolidation. Most will use the FICO score model to determine your eligibility.
Online lenders will usually offer some great deals. The key is to research the different options available. Talk with other people who have used an online lender to consolidate credit cards or loans. See how much they liked the service and the advice they were given. Remember, if you want to save money on your a low interest debt consolidation loan, you have to take out enough loans from an online lender to pay off all your current debts.
Another option is to use your home to consolidate student loans. Many people do this to free up valuable home property that can be used to consolidate the loans. However, if you are looking at this option as a means of consolidating credit cards or other unsecured debts, you may be risking having your home foreclosed upon if you do not make the payments. Before you use your home to consolidate these types of loans, you should get an estimate of the debt to be consolidated. The estimate should be for the total amount of the individual loans and not for the total debt owed.
A debt management program can help you get back on track with your finances. Credit counseling services can also help people get back on their feet if they find that their debt is getting out of control. If you are thinking about consolidating your credit cards or other unsecured loans, talk to your financial advisor. He or she can give you the option of using a low interest debt consolidation program or a debt management program. Whichever option you choose, be sure to make all payments on time and never charge more than you can afford to pay off each month.