Other Alternatives to Consolidation

by admin on February 25, 2014

iStock_000000947702SmallConsolidation is the act of applying for one loan to combine multiple debts. There are many reasons why borrowers get into debt, including, underemployment, complicated divorce, and others. Borrowers usually consolidate unsecured debts such as loans and credit cards.

Affordable Payments

Standard consolidation loans are offered by peer to peer lending platforms, credit unions, and banks. A home equity loan is one option if you have a mortgage In addition to the lower interest rate, these loans are easy to qualify for.  Homeowners borrow against their home equity, and financial institutions take less risk as a result. Financial institutions also offer home equity lines of credit which can be used to consolidate debt or as a form of protection. This is a flexible solution that works like a credit card. The credit limit is based on your home equity.

Balance Transfers and HELOCs

Borrowers with multiple high interest credit cards benefit from debt consolidation if they transfer their outstanding balances to a low interest card. Balance transfer cards feature a low introductory rate within a period of 12 to 18 months. Some borrowers also choose this method because of the possibility to get deductions. What is more, the fact that you eliminate multiple account balances, checks, automatic drafts, and bills makes management and planning easier. Consolidation also helps debt-ridden borrowers to improve their credit scores provided that they make regular payments.

Weighing Your Options

Using an online calculator is one way to get a clear picture. Plug in your student, RV, and other loan balances. The calculator asks you to enter all outstanding balances and offers a consolidated loan and current debt analysis. For example, you have a credit card with a balance of $200, monthly payment of $30 and a 12 percent APR. Your loan balance is $5,000 at 6.5 percent. The online calculator shows important information such as your monthly savings amount and total debt balance. There are different online calculators to choose from or you can contact a professional.

Other Forms of Consolidation

When it comes to student loans, borrowers are allowed to consolidate private and federal loans. Similar to other repayment schemes, borrowers benefit from lower monthly payments but pay more in the long run. You are allowed to consolidate once you drop below half-time enrollment. In general, this is an option for students with financial problems and low salaries. There are other alternatives to consolidation, including bankruptcy, consumer proposal, and debt settlement. Some borrowers opt for self-management. The term of the new loan is longer.

Related Resources:

Debt Consolidation in Canada

Credit Card Consolidation

 

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