We’re bombarded with so much information on finance management that we don’t know where to turn.
If you’re thinking of debt consolidation, here are 5 types to choose from:
This is a second mortgage against the equity in your home. They come in two forms:
• Home Equity Term (HET), which is a lump sum loan for a fixed term at a fixed interest rate.
• Home Equity Line of Credit (HELOC), which is a type of revolving credit loan with an adjustable interest rate that you can borrow against whenever you choose.
To qualify, you need a good to excellent credit record. You interest rate is lower, as your house is the collateral. However, you risk losing your home if you renege on the repayments.
You can take out a personal loan to consolidate your debt.
There are two types:
• Secured loan where you put up your house or car as collateral. The interest rate is lower. However, the lender has the right to seize your asset if you miss your repayments.
• Unsecured loan where you don’t put up any assets as collateral. The interest rate will be higher, because the lender is taking a risk if you cannot make repayments.
Debt Consolidation Loans
Debt consolidation loans work in two ways:
• The lender can offer a personal debt consolidation loan where the money is transferred into your account, and it’s up to you to settle your bills.
Although this is, in effect, a personal loan, it still falls under the heading of a debt consolidation loan. The interest rates will be higher, as the lender is taking a risk in not knowing if you will use the money to settle your debts.
• The lender can directly settle your accounts with your creditors, leaving you with only the lender’s loan to pay off.
Credit Card Transfers
You move the debt of all your cards onto one credit card. Some companies offer promotions with low interest for a period, whereafter a higher interest rate kicks in. If you use this option, the credit card company will pay off your other cards, and move the debt onto your new credit card.
You save if you can pay off your debt within the low interest period. But be aware that your credit score will suffer, as you’re putting all your debt onto your credit card.
Debt Consolidation Agencies and Debt Management Programmes
A debt counsellor can manage your debt for you. You can apply for debt review (only if you’re over-indebted) where a debt counsellor negotiates with your creditors for reduced monthly payments.
You pay one fixed amount which is apportioned to all your creditors over a set term.Although there are quite a few ways to consolidate your debt, be sure to do your research to see which one will work best for you.
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