What is the Best Way to Consolidate Debt?
Consolidating your high interest debts into one easy monthly payment at a lower interest rate can be a great way to relieve some financial stress and even to help you get out of debt sooner. But there are so many tools available to consolidate your debts that you may not be sure which method is best.
The fact is, there is no one “best” method to consolidate debt – but there very well may be a best method for you.
Unsecured Debt Consolidation Loans
An unsecured loan is a loan without collateral. For the purposes of debt consolidation, this might include strategies such as a credit card transfer or a personal line of credit. These might be good options for you if you either do not yet own your own home of if you have a home but do not have sufficient equity in your home for a secured loan.
The drawback of using unsecured debt consolidation loans is that the interest rate is typically harder and if you have poor credit, it can be much more difficult to qualify for these types of loans.
Secured Debt Consolidation Loans
A secured loan is a loan for which you have collateral – commonly that collateral is the equity that you have built up in your home. These types of loans are typically low interest and do not require you to have perfect credit in order to qualify. Types of debt consolidation loans that make use of the equity in your home include:
- Refinancing – breaking your current mortgage and getting a new one (while transferring your current debt to your mortgage). This may be a good option if you are fairly close to your mortgage renewal date.
- Second Mortgage – without breaking your current mortgage, you get an additional mortgage – borrowing money from your home equity to pay off your debts. The interest rate with this option will typically be higher than refinancing, but you will save money on financial penalties if you are not close to your mortgage renewal date.
- Home equity line of credit (HELOC) – this works in a similar fashion to a personal line of credit, it which you can borrow and pay back money up to a certain limit. This option may be best if you know you will have to borrow more in the future, but have the self-discipline necessary to not rack up debt unnecessarily.
What Type of Debt Consolidation Loan is Best for Me?
To determine which type of debt consolidation loan is best for you, you should consult with a mortgage broker who can run calculations to determine which method will save you the most money and help you get out of debt the fastest.
For an appointment with one of our brokers, contact 1ONEFUND Financial today!