What Are the Different Types of Debt Consolidation

Debt consolidation entails using a loan or credit card to pay off multiple ongoing loans to simplify one’s debt repayment schedule. When borrowers have to keep an eye on one balance instead of several, they will have a much easier time paying off their debt. There are even instances when they can get a lower interest rate from their new lender.

There are various ways to consolidate debt. Their options could be limited depending on a person’s credit standing, real estate assets, and type of debt incurred. 

• Credit Card Balance Transfer

A good option for consolidating high-interest rate credit cards is to get another credit card with a high credit limit and a promotional interest rate on balance transfers. Using this method, one only has to pay for the balance of a single credit card. A person can combine their balances under a single account with lower interest than their existing ones. Afterwards, they can eventually save money on interest and only focus on paying for one card.

If they plan on getting a credit card balance transfer, there is something that they need to keep in mind. Balance transfers usually don’t count toward points, miles, or introductory cash.

• Debt Consolidation Loan

Some lenders offer debt consolidation loans that are specifically used to pay off debts. This type of loan can have a fixed interest rate and repayment period, which allows for stable repayment terms.

Debt consolidation programs or a debt management plan (DMP) is a repayment plan arranged through a credit counselling party. The counsellor sets payment schedules and terms that help someone pay off their debt more affordably and quickly. It is often suggested to borrowers that a credit counsellor has deemed someone unable to repay their debts after reviewing their finances.

A DMP usually covers unsecured debts, such as medical bills and credit cards, and secured debts, such as auto loans and mortgages.

• Student Loan Consolidation 

Student loans are also offered to consolidate multiple student loan balances into one, allowing the borrower to make single monthly payments. This arrangement is advantageous for people with multiple loans from various lenders. Student loan consolidation is available for federal and private loans.

• Home Equity Loans and Lines of Credit 

This debt consolidation plan allows borrowers to get 80 to 85 percent of their home’s equity. This option enables an individual to take out a specific amount of money that can be repaid through fixed repayments over a set term. 

A home equity line of credit (HELOC) can be likened to a credit card since it allows borrowers to access money whenever they need it and only pay back the interest on what they borrowed. However, anyone interested needs to know that they are likely to pay a series of fees to finalise their HELOC. 

These types of loans will require an individual to use their home as collateral. If they cannot pay the loan or line of credit, they could lose their property through foreclosure.

• Cash-Out Mortgage Refinance

This type of mortgage refinance allows a person to get a new mortgage that is more than what they owe from their initial mortgage. The new one will pay off the old one, allowing the borrower to keep the difference. They can use the remaining balance to pay off other existing debts. Note that cash-out refinances usually come with significant closing costs.

Conclusion

It can be challenging to pay off multiple debts. As such, individuals must be given debt solutions that are most suitable for them. By consolidating their debts, they can have an easier time repaying their lenders. For those who are still struggling with repayment, a debt consultant in Canada can be of service.

Debt Helpers offers a wide range of consulting services and debt solutions to those in need. Their services are designed to help borrowers reach their goal of becoming free from debt and financially independent. For further inquiries, contact their team today.