Should You Consider a Debt Consolidation Loan?

How is your debt load? Is it becoming unmanageable? Are you juggling payments between creditors? Are you considering another credit card with a low introductory rate? A Debt Consolidation Loan is designed to help take care of multiple payments and high interest rates and reduce them down into one manageable payment. Does this sound right for you? Let's examine further.

The Purpose of a Debt Consolidation Loan
A debt consolidation loan is equipped with the ability to take all of your high interest debts that are being paid to multiple lenders and lump all of those together, pay them off with the loan, and set up one payment with a much lower interest rate for you. If your purpose is to make your bill paying simpler, save on interest charges, and make your monthly budget more manageable then debt consolidation is an option to consider.

How a Debt Consolidation Loan Works
Getting a lower interest rate loan is all based on the collateral you have to offer for the loan. The most common collateral is found in the equity built up in your home. That is calculated by the appraised value of your home today minus the balance that you owe. For example, if you purchased your home 5 years ago for $100,000 and the appraised value today is $125,000, not taking into consideration what you have paid down on the loan over the past 5 years, you would have $25,000 in home equity. You would have $25,000 available to pay off your debt into one lower interest payment.

Your Options for Consolidating Debt
You can access your money in a couple of ways. One option is to take out a second mortgage on your home for the $25,000. That would give you two house payments. One for the original loan and one for the second mortgage. A second option would be to totally refinance your home with a Cash-out Refinance loan. What this means is you get a new mortgage on your current home. With the new appraised value, at closing you would receive $25,000 for the difference in your first loan and the new loan you are starting for the new appraised value of your home. This would give you one house payment and access to the funds needed to pay off all your current debt.

Be Careful
Not all Debt Consolidation Loans are the same. There are fees involved as well as the current interest rate. Make sure you read and understand all the details concerning the loan including the payback period and the fine print fees. A debt consolidation loan could make your current monthly payment go up. You must compare what the new monthly payment is in comparison to your old mortgage payment plus all the other bills you were currently paying which you no longer have. If your new monthly payment is less overall than all your old payments combined, then overall it would be a good thing to go ahead and commit to.

The Trick
Once all your debt has been consolidated into one easy monthly payment and all your creditors are happy and you are feeling good about life again, don't blow it. Don't fall into the quagmire of debt again. That is the trick. If you live within your budget, begin saving some money each month for when life happens, you will find your life manageable and peaceful. Then and only then, will your debt consolidation loan be for you what it was meant to be.

by: Jeff Thompson
Credit Union Directory - http://creditunionl.com