Wednesday 19th of December 2018

Eliminate Your Credit Card Debt, But How?

If you are struggling with debt, you might be thinking about a debt consolidation loan. This may or may not be a viable solution to your financial problems, depending on your circumstances. Some consumers may be better off with other options, such as bankruptcy or credit counseling. Of course, bankruptcy should only be used as a last resort when you’ve exhausted all of your other options. Before you make the decision to borrow, you will need to collect some information and consider several different factors. In this post, we’ll help you decide if this is the right way to eliminate your balances.

Gathering Information

You will need to have certain information before you can make an educated decision about borrowing. Ask yourself the following questions:

  • How much do you owe?
  • How much unsecured debt do you have? These are balances that are not tied to a physical piece of property, such as a car or a house. Card balances falls into this category. Student loans also qualify. If you have at least $5,000-$7,000 of unsecured debt, you have many different consolidation options available to you. With secured debt, you will not be able to consolidate, though you may be able to refinance for better rates.
  • Are you a home owner? If so, you might think about using your home as collateral for a secured debt consolidation loan. If you do own a home, you also will need to know how much equity you have.
  • What would your interest rates be on a consolidation loan? Your interest rate will be determined by your credit, the market rate, and your lender.
  • What is your credit score? Consumers with higher credit scores will have more options available to them than those with less-than-perfect credit scores. For instance, those with fairly good credit scores might be able to obtain a personal loan for consolidation purposes.

Using Home Equity

If you decide to access the equity in your home to consolidate, you need to keep two things in mind. First, a home equity loan will likely place you below the 20% equity threshold, which means you will need to pay for Private Mortgage Insurance (PMI). Secondly, a home equity debt consolidation loan usually has tax-deductible interest, which can save you even more money in the long term.