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Debt consolidation loans are used to pay off and simplify existing debt by consolidating multiple payments and accounts into a single account with one lender and payment. Depending on your creditworthiness, you may be able to receive a lower interest rate on a debt consolidation loan than you are currently paying on your debt, saving you money on monthly payments and overall interest.
Another option for lowering your monthly payment is with a long loan term.
If you’re facing bankruptcy, credit card debt is unsecured and typically discharged more easily than a home equity loan. Unsecured debt consolidation loans don’t require collateral, and they usually have easier approval requirements than secured debt consolidation loans.
Unsecured debt consolidation loans can have income requirements as low as ,000 annually, debt-to-income ratios of up to 50 percent and minimum FICO credit scores as low as 600.
While unsecured debt consolidation loans can be easier to obtain and more convenient than secured debt consolidation loans, they generally have higher interest rates, so they are more expensive to pay down than a secured debt consolidation loan.
Getting a debt consolidation loan is a major financial decision and one that shouldn’t be taken lightly.
Interest paid on a home equity loan is usually tax deductible, while credit card interest is not.However, home equity loans for debt consolidation can be risky, as your home may be foreclosed on if you can’t pay your loan.“The danger is if you eat up a significant part of your home equity,” says Gerri Detweiler, education director of business credit website Most lenders offer rate quotes, which are soft inquiries on your credit and have no effect on your credit score.When you do a hard inquiry during the final approval process, it will be reflected on your credit report. Although debt consolidation loans are a legitimate solution for eliminating debt, some other debt consolidation options are scams.“No lender should charge you upfront before you get the loan … A debt consolidation loan can wipe the slate clean and allow you to start fresh with zero balances on credit cards and other credit commitments.