Personal Debt Consolidation Loan Options

There are methods of Personal Debt Consolidation that don’t necessarily mean you need to apply for a high interest loan...

One of the major problems with trying to consolidate your personal debt is that once your finances get to the point where you realize you need to take affirmative action to get it under control, you are probably already late on several payments and your credit score has taken a hit accordingly. This means that the first thing you should try to avoid, if at all possible, is taking out a new loan if you have other options open to you. There are methods of personal debt consolidation that don’t necessarily mean you need to apply for a high interest loan. Understand that if your credit score is not great you will only qualify for loans that carry high rates.

If you start at the very beginning and make an accurate assessment of just exactly how much you owe, how much income you have, what assets you have and weigh all of that against how much you can reasonably afford to pay each month, you can probably find an answer to your dilemma without the need to secure a high interest loan.

What you will need to do is figure out exactly what you need for living expenses. Budget that amount first and add about 10% for contingencies. Look at what you have left and analyze your debts. If you can’t make all your payments with what is left in your budget, the first thing to do is try to talk to your creditors about getting the interest rates lowered. Once you have all your payments as low as possible, take a good look at the interest rates each of your credit cards carry. The card that offers the lowest interest might be your first place to look when trying to consolidate personal debt. It may be possible to pay off the principal on several of those cards that carry higher rates with the card that carries the lowest interest.

If you own any property and have any equity established in your home, you might qualify for a home equity loan. Even with less than perfect credit, secured loans carry much lower finance charges than credit cards or personal loans. You could very well reduce your interest rate from 18% or higher to around 7% with a home equity loan.

Because loans against property are secured, the risk to the lender is not as great as an unsecured loan so you will most certainly get rates that are significantly lower. Some homeowners even refinance their homes and get a new mortgage loan. If you have enough equity in your home that you could borrow against above and beyond what you currently owe, a refinance might be even a better option. The interest rates would definitely be lower and you could take the extra money you are financing and pay off all those smaller debts.

On the other hand, if you don’t have any property that can be used as collateral, and you still have the need to secure a loan to consolidate personal debt, understand that the rates will be high and you might end up with payments higher than you are currently paying. Before you jump into an unsecured loan for personal debt consolidation, make sure there are no other viable options available to you.