For many people out there, it is an extremely hard task to sustain a steady financial state for a long period of time. Even when they put in all their effort, with life being as expensive as it is, many people still struggle with their monthly bills. Nowadays, having a job, working hard and getting that monthly income is often simply not enough. If all that people had to worry about was paying their monthly bills, the situation would probably not be that hard. There are also emergency expenses, problems with finding a job and other scenarios where people quickly run out of cash. Yet, the reasons to get in debt do not stop here.
Everybody wants to have a good life, make the best out of their time and so it is only normal to strive for a successful career. However, in order to be successful, in most cases you would need to graduate from a college, and that is far from cheap. Not everyone can afford to pay for his education and so many students take out student loans. While it is good to invest in yourself, in many cases, such people continue to repay their student loans long after they have graduated from college. If you are already carrying debt, it is not so important how you got there, but rather how you are going to get out.
Getting rid of debt has proven to be an extremely hard task that most people usually cannot handle, at least not on their own. That is why there are many debt relief programs designed especially for people who struggle with debt and who want to get rid of it once and for all. Maybe the most popular way to deal with multiple debts is with debt consolidation loans. Below we will talk about that debt consolidation loans are and what are the different debt consolidation loan types that you can usually use to manage your debts and reach the point of debt relief.
What is a debt consolidation loan?
It is more than likely that you have already considered trying to make your payments for your debt a bit easier with the help of a debt consolidation loan. What a debt consolidation loan does is basically combining all your high interest rate debts into just a single loan with lower interest rate and therefore lower overall monthly payment. By using a debt consolidation loan, you will most likely be able to pay a lower sum for your debt monthly payment, and with that, you will be more capable of affording your monthly bills. There are different debt consolidation loan types that you can choose from to reach your goal.
Debt consolidation loan types
Here are the most common types of loans that you can use to consolidate your debt
Home Equity Loans
This is a type of loan that you have taken out by using your home equity as collateral for the loan. Usually, you need to have good credit and a good amount of equity in your home in order to qualify for this loan type. Home equity loans usually have lower interest rates and fees compared to other loan types, however, putting your property on the line in order to get the money you need is always going to be a risky choice. If for some reason, at some point you can no longer afford to make your monthly loan payments, you may be faced with foreclosure on your property. This is the reason why if you are not completely sure in your ability to make your monthly payments, using a home equity loan as a debt consolidation loan is probably not the best idea.
Balance Transfer of your Credit Cards
What you do with a credit card balance transfer is, you transfer the balances of your credit cards into a new credit card with a lower interest rate. Normally, such lower interest rate credit card balance transfers are promotional, and therefore, they will expire after a certain time period. And so if you decide to transfer your credit card balances, you should check when will the low rate expire and what is going to be the regular interest rate when that happens. If you intend using the balance transfer of your credit cards as a debt consolidation loan, you will need to have a credit card that has a credit limit large enough to hold all your current credit card debt. Consolidating your debt with a credit card balance transfer can also have its downside and that is going to be a hit to your credit rating. That is because, if you put too much of your debt onto a single credit card, that may impact your credit score in a negative way as your credit utilization will most likely go up.
If you are able to borrow a big personal loan, you may be able to use it as a debt consolidation loan. A personal loan is basically an unsecured loan with fixed monthly payments that you must repay over a scheduled period of time. Once you get approval on your personal loan application, you will be able to use it to consolidate your debt. Your chances of being approved for a personal loan will vary depending on whether you have a good or a bad credit score. You may be approved for a personal loan even if you do not have the best of credit scores, but that will most likely mean that your loan will have a higher interest rate and that is something you should really take into consideration when deciding whether you want to go through with it or not.
If used in the right way, debt consolidation may be a good way of dealing with your multiple outstanding debts.