When interest rates are low statistics show consumers take on additional debt (consolidation loans) to ease existing credit problems. The goal is to consolidate various higher-interest balances into one, easier-to-manage and affordable monthly payment.



Consolidation Loan - Options

Home equity loan, or line of credit

Home equity lines or loans often are touted as a quick and easy way to get out of debt. By leveraging your residence's value, the pitch goes, you can get money to pay off other bills and a tax break, too. But borrowing against your house can backfire. The biggest risk: You could lose your home if you default on the loan, and that is scary.

hardships occur on a daily basis and now they have double. And while equity loan interest generally is tax deductible, it could be limited in some situations. Even when it does provide a tax break. Banks will tell you how much you can borrow, this doesn't mean you should borrow the total amount, but that's what most people do. In some situations, a home equity line of credit or loan to pay off creditors can work for some debt-stricken homeowners.

0% Credit Cards for People who Don't Own a House

In these cases, many turn to zero-percent credit cards to reduce debt. Again, money management and discipline is a firm requirement. Creditors and companies offer these rates as teasers to entice individuals into switching credit card vendors. Much of the time, credit card companies target consumers with better credit, so that may leave someone struggling with debt without this option. Even if you do qualify for a zero-percent or similar single-digit rate, it won't last forever. Make sure you know when it will end, and what the rate is expected to increase to when it does occur. The low rate also lasts only if you pay on time, so read the fine print and stipulations very carefully because one late payment and the credit card company will hike up the interest rate. Also look for hidden fees and charges that can increase the actual cost of borrowing.

Debt Consolidation Loan

A major appeal of consolidation loans is convenience. Instead of paying 10 different creditors who are charging different interest rates at different times of the month, you take out one loan and pay off all your credit accounts. Then you make a single payment on that loan once a month. But convenience doesn't automatically translate to savings. Before you sign on the dotted line, be sure that the costs of the new, bundled loan will truly be less than what you're already paying various creditors. For many consolidation-loan candidates, their current credit woes mean they won't get the lowest-available interest rate. Plus, when there is nothing to secure the loan (such as your home), expect the lender to increase the rate, hence the risk of lending. Calculate interest and fees on all your existing accounts to determine the total of the payments you now make. Then compare those amounts with the consolidation loan numbers to make sure it truly is a better choice. Additionally, as with any service or product for that matter, shop around. The well known branded bank such as Bank of America may offer an attractive loan rate, but check your local credit union for better terms. Credit unions also tend to be more lenient than the banks.

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