WHAT IS LOAN CONSOLIDATION
Debt consolidation is the process of paying off multiple existing debts with a new loan or credit cards. Although there are special loans, marketed as debt consolidation loans, personal and home equity loans can be used for debt consolidation.
When you have multiple credit card balances and small loans with different interest rates and monthly payments, rather than paying these loans individually, you can consolidate all three balances with one loan that requires one payment instead of three. With that, you can easily pay off your loan. Also, depending on the terms of your new loan, consolidation can often reduce your interest rate as well as total repayment costs.
If you are looking to get a loan, you can consider using the services of MyLender after reading about what other people that have used their services in Finland have to say about them on suomiarvostelut.fi.
TYPES OF DEBT CONSOLIDATION
There are two types of debt consolidation loans. They are
- Secured Loans
- Unsecured Loans
Secured loans are usually backed with collaterals. The borrower’s use their assets such as a house or car as collateral for the loan. A huge amount of money can be lent out by the Lender.
An unsecured loan is a type of loan that is not backed with assets. The lender is usually at high risk. However, they tend to have a higher interest rate and lower qualifying amounts.
However, depending on the type of debt you want to consolidate your options may be limited.
Credit Card Balance Transfer
A credit card with a high credit limit and the promotional interest rate on a balance transfer is a good means for consolidating other high-interest rate credit card balances onto a credit card. Combining your balances under an interest rate that is much lower than the average rate of your existing balances allows you to save money on interest and pay using a credit card.
Debt Consolidation Loan
Most lenders often offer debt consolidation loans which is an unsecured personal loan and it is specifically designed for paying off debts. Debt consolidation loans have a fixed interest rate and repayment period for the more stable repayment term.
Student Loan Consolidation
Student loan consolidation is specifically for consolidating multiple student loan balances into a loan with a single monthly payment. This type of loan is beneficial to students with multiple student loans with different lenders.
Home Equity Loans and Lines of Credit (HELOC)
This loan option allows you to take out a certain amount of money that you repay through fixed repayments over some time. It is similar to a credit card in such a way that you have access to money whenever you need it and only pay interest on the money you borrow.
ADVANTAGES OF DEBT CONSOLIDATION
- Debt consolidation is of great benefits for people who have multiple debts with high-interest rates or monthly.
- With debt consolidation, you can easily manage your expenses by combining multiple debts into a monthly payment
- Lower interest rate
DISADVANTAGES OF DEBT CONSOLIDATION
- A longer repayment term means paying more in the long run
- Some consolidation loans require collateral