Consolidating loans often makes sense especially if you can pay a lower interest rate than what you’re paying now. But you should be aware of your total overall costs so you don’t end up deeper in debt than when you started.
Here are a couple of things to keep in mind when deciding if consolidating loans works best for you. No matter what kind of loan you get, shop for the lowest interest rate possible.
Next, you want to pay off that debt consolidation loan in the shortest time possible to avoid getting any deeper in debt.
Plan to pay off your debts in three to five years starting with the highest interest rate debt first.
Here are some of the best ways for consolidating loans as long as you research which interest rate is the very lowest for you.
Many low rate credit cards offer you a much lower rate than standard debt consolidation loans. Make sure you get a no fee card for transfering new balances. By transferring higher interest credit card debt to a lower rate card, you can pay more towards the principal of your debt and pay it off quicker. Consolidating loans always makes sense if you can lower your interest on your debt.
Debt Consolidation Loan
A debt consolidation loan is another good option for consolidating loans if you can get an interest rate that is reasonable. But the repayment terms should only be three to five years not ten or fifteen years so you don’t pay a fortune in interest. Calculate the total cost of the loan from start to finish to see if this makes sense for you.
Home Equity Loan or Line Of Credit
A home equity loan offers you a fixed interest rate for a fixed period of time. A home equity line of credit is where you borrow a pre-approved credit limit and can have money available as you need it. An equity line offers you variable interest rates and usually start lower than the equity loan fixed rates.
Many lenders offer no or low closing costs for home equity loans and credit lines. Another thing to keep in mind if you use this for consolidating loans. The interest on these loans is usually tax-deductible if you itemize.
Make sure you understand the total cost of refinancing. You want to end up with a lower monthly payment than you have now but calculate the cost of the interest to see if this is a good option for consolidating loans in your situation.
Whatever method you choose, make sure you aren’t just lowering your monthly payments and getting deeper in debt. Make it your goal to pay off your debt in three to five years.
The key for successfully consolidating loans is eliminate the high interest costs of your debts and stick to a plan of paying them off as quick as you can.