For those who have multiple debts and struggle to repay the bills every month, a debt consolidation loan could be an option for you. Basically, by drawing out a debt consolidation loan, you can roll in your multiple debts into a single source that can also help in reducing the rate of interest.
However, before applying for the loan from a debt consolidation company UK or in any other location, it is important that you carefully analyse the terms & policies of the loan. It is an important step that you cannot skip as there are many companies that scam the public in the name of debt consolidation loans.
Other than that, you must learn about the different types of debt consolidation loans that are available as an option for you. After all, you want to make the best choice that can help you gain control over your finances. Continue to read till the end to know the varied types of consolidation loans available.
1. Home Equity Loan
The first option that you have is a home equity loan that allows you to use equity of your home as a collateral. There are certain criteria that you need to fulfil in order to qualify for drawing out home equity loans.
To begin with, your home must have a fair equity amount in order to be used as a collateral for the loan. Also, you need to have a good credit in order to apply for this type of loan. Now, even though the amount of interest rate for home equity loans are comparatively less, it is a risky loan option to choose.
After all, you’ll be keeping your house on the line for your multiple debts accumulated. And if by any chance, you are not able to repay for the debt then you have to deal with the foreclosure on the house. This is why it is not a wise choice to go for home equity as a debt consolidation loan option.
2. Personal Loans for Consolidation
Now there’s also a personal loan option that can be used for debt consolidation loans if you are able to take a huge lump sum amount that covers all your multiple debts. A personal loan is basically an unsecured loan that has a fixed repayment for over a fixed tenure.
Once you are qualified to take a personal loan, you can use the amount to consolidate all your multiple debts. However, there’s a catch to applying for a personal loan and that is you must have a good credit rating. if you have bad credit then you may not get the approval for the loan or may get but at a higher rate of interest.
Now taking a high rate of interest personal loan may allow you to consolidate your multiple debts but you wouldn’t be saving anything for the long run.
3. Credit Card Balance Transfers
Credit card balance transfer enables you to transfer the outstanding dues from multiple credit cards onto a single credit card. Generally, the transfer is initiated to a credit card that has a lower rate of interest.
However, the low interest rate may just be a promotional offer that could expire after a few months. This is why before you apply for this type of loan you must learn the details of the expiry of the low interest rate offer and what would be the standard rate applied after the expiry.
Also, if you wish to take credit card balance transfer as an option for debt consolidation loan then you must have a credit card that has a huge credit limit that can cover all your multiple debts. However, you must know that your credit score could negatively impact once you draw out credit balance transfer as your debt consolidation loan option.
Now there’s the classic debt consolidation loan that several debt consolidation loan company UK or in other locations offer that have the sole purpose of consolidating your multiple debts into one. However, the above list are other options that are available for debt consolidation loans. Make your choice wisely by analysing the pros and cons of each type of loan that are available.