Debt Consolidation: BE DEBT
FREE: The Different Ways To Cons |
By Parul Makhija |
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A debt consolidation loan is a loan taken to consolidate a number
of loans into one manageable loan. A debt consolidation loan can
also help you in reducing the cost of your total debt as it
usually carries a lower rate of interest than other loans, such
as personal loans, credit cards, car loans, etc. A debt
consolidation loan with an extended loan period can reduce the
amount of your monthly loan repayments.
Thus, there are
three main objectives of debt consolidation:
To
consolidate a number of loans into one manageable loan.
To
reduce the cost of debt.
To reduce the amount of monthly
loan repayments.
You may avail different types of loans
to consolidate your debt:
Secured Loans Debt consolidation through secured loans is a
logical thing to do since secured loans carry low rates of
interest and one of the objectives of debt consolidation is to
reduce the cost of debt. However, you must be very careful while
consolidating your debt through secured loans since it puts your
property at the risk of repossession in case of repeated
defaults in repayment on your part.
Unsecured Loans
You may also consolidate your debt through unsecured loans.
However, before availing an unsecured loan to consolidate your
debt, make sure that it does not carry a very high rate of
interest otherwise the very objective of reducing the cost of
debt will be defeated.
Home Equity Loan
Home
equity loan is a type of secured loan. Home equity is the value
left in a house after subtracting the unpaid mortgage balance
from the current value of the house. A home equity loan is a
second mortgage, which is taken against a house that is already
mortgaged.
Low Interest Credit Cards
You can also
reduce your debt burden by availing a new credit card that
charges a lower rate of interest than your existing credit
cards. If you use a low interest credit card to repay your
earlier credit card dues, it will greatly reduce your debt
burden. This can be even more beneficial when the new credit
card offers 0% interest credit if it is repaid within a
stipulated time. |
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