Almost every individual in this world has one or anther form of debt on his/her name. While some are successful in paying off this debt, others find it really hard either due to their circumstances or by following improper finance management strategies. As a result, they finally end up as bankrupt. One way of avoiding the problem of debts is to opt for an appropriate debt consolidation loan.
Debt consolidation loans can be described as a strategy where all the existing loans are combined into one. However, the fact is that the lender, who provides a debt consolidation loan to any individual, actually pays off all the existing debts of the borrower. The advantage of opting for a debt consolidation loan is that these loans are available at lower interest rates. As a result, the total amount that a borrower pays to one lender at the end is comparatively much lower than the amount paid by to clear off multiple loans. Debt consolidation also helps in improving the one’s credit history.
Mentioned below are some useful tips and ways that can help in debt consolidation.
Credit Card Transfers: Accumulating credit, including the accrued interest, can be a matter of worry for many. One good strategy is to transfer the existing debts on one credit card to another. In this regard, one needs to shop around so as to get the best deal. The entire aspect revolves around getting the best interest rate. One should opt for credit cards that offer lowest rates.
Home equity Loans: One way of consolidating your already existing mortgage loan is to go for a home equity loan. Equity that is built up on the home is used as a security or collateral for obtaining the loan. Another advantage of home equity loans is that they are relatively inexpensive and can be obtained at lower interest rates. If used properly, home equity loans are a great money saving strategy.
Loan on Life Insurance Policies: Life insurance policies can be used as collateral for obtaining loan. Also, life insurance policies do have the clause where one can borrow a specified amount of money against the value of the policy. One advantage of these loans is that one doesn’t need to necessarily pay the loan amount back to the insurance company. In case the loan amount is not paid back, the same is deducted from the maturity amount and the rest is paid back to the beneficiaries.
Retirement Funds: One can even opt for loans on the retirement plans such as 401(k). However, one should opt for this strategy only when there is absolutely no other choice. Advantage of taking loan from a retirement plan is that the loan payments are drastically lower. Even the loan gets repaid within very less time. The glitch is that interest and bonus accrued at the end of the year is one the amount present in the plan. Since the amount present in the plan gets reduced due to the loan, the accrued interest and bonus is also less.
Other good means of consolidating existing loans is to obtain funds either from family and friends or else opt for loans from credit unions. An important fact one should remember before going for a debt consolidation is to opt for a detailed consultation with a registered financial planner.