Your debt consolidation options
If you are struggling with high interest debt, you may be wondering if you will ever be able to get out from underneath it. Perhaps you’ve even looked into bankruptcy or consumer proposal, but found out that you didn’t qualify – or maybe you just decided that you would prefer to preserve what is left of your credit score and pay off your debt yourself. But how? One option is debt consolidation.
What is debt consolidation?
Debt consolidation simply means that you take out one large loan to pay off your other debts. This has two main advantages. First, it reduces your debt payments to one monthly payment so there is less risk of you missing one of your bills. Second, when you get a debt consolidation loan, it should always be for a lower interest rate than you are currently paying. This will enable you to pay off your debt more quickly.
Types of debt consolidation loans.
Depending on your circumstances, there are various types of debt consolidation loans that you may want to look into. If you do not own your own home, you will want to look into unsecured loans. These loans typically have a higher interest rate than secured loans, but you will likely still end up paying less interest than you are now.
If you do own your own home, you can look into getting a secured loan based on your home equity. These loans will have a much lower interest rate, but keep in mind that you may be at risk of losing your home if you become unable to make the payments.
There are three main types of secured loans based on home equity. These are mortgage refinancing, second mortgages and home equity lines of credit.
- Mortgage refinancing – this is where you break your first mortgage and get a new mortgage. In the new mortgage, you can consolidate your existing debt. This option offers the lowest interest rate of the three, but comes with a financial penalty for breaking your first mortgage.
- Second mortgage – this is simply a loan against your home equity. It does not require you to break your first mortgage. This option comes with a slightly higher interest rate than mortgage refinancing, but there is no financial penalty.
- Home Equity Line of Credit – this type of loan is a revolving line of credit that works in a similar way to a personal line of credit. This type of loan may be best for someone who knows that they will need to borrow again in the future.
What type of debt consolidation loan is best?
There is no one right answer to this question. It really all depends on your circumstances. If you would like to explore your debt consolidation options, call us today to speak to a member of our team.