Debt Consolidation Decision Helper
Our Debt Consolidation Decision Helper can help you make the right decision about consolidating your debt.
You've got several credit cards, a department store charge card or two, some medical bills, and maybe some old taxes. You're thinking about debt consolidation as a way to streamline your finances. Debt consolidation means taking out one loan to pay off all of your other debts like the ones mentioned earlier. When you consolidate your debt, you have only one payment due each month, instead of two, three, or more. Debt consolidation may also help lower your interest on your debt, as well as the total amount you pay on your debt.
There are a lot of options for debt consolidation out there, and because every debt situation is different, you may wonder if debt consolidation would be a good idea for you, how much you can save by consolidating your debt, and what debt consolidation options would work best for you.
Here are some basic questions to ask yourself when you're thinking about debt consolidation, along with some information to help you make the right decision about consolidating your debt.
Is Debt Consolidation Right for You?
Before you begin the debt consolidation process, ask yourself these questions:
· What goal(s) do I want to accomplish with debt consolidation? For example, do I want to lower my interest, lower my monthly payment, pay off my debt more quickly, or be able to deduct the interest from my taxes?
· How much do I owe?
· What are the interest rates on the bills I owe now?
· What kinds of bills do I owe?
· What's my credit score?
· How much can I afford for any fees?
· Do I expect to take on any more debt?
How Much Money Can Debt Consolidation Help You Save?
How much money debt consolidation can help you save depends on:
· Current interest rates
· Your credit score
· The term of your debt consolidation loan
· The type of debt consolidation loan you choose
· Any fees involved
· Whether you can deduct the interest from your taxes and, if so, how much
Our Debt Consolidation Calculator can also help you find out how much money debt consolidation might save you.
Which Debt Consolidation Option Is Right For You?
There are three basic ways you can consolidate your debt:
· Home Equity Loan: You borrow money against your home equity, or the value of your home minus what you owe on any mortgage(s) you have.
· Cash out Mortgage Refinancing: You take out another mortgage on your home to pay off your current mortgage, as well as some extra money.
· Personal Loan: You borrow money based on your promise to repay.
This chart explains the basic differences among these debt consolidation options:
|
|
Home Equity Loan |
Cash Out Mortgage Refinancing |
Personal Loan |
|
Approval Process |
· May take several days / weeks / months · Similar to the process for applying for a mortgage |
· May take several days / weeks / months ·Similar to the process for applying for a mortgage |
· May take 1-2 days · Similar to the process for applying for a credit card
|
|
Collateral |
Home equity |
Home equity |
No collateral required |
|
Fees |
Fees, such as appraisals, closing costs, legal fees, origination fees, points, and other fees, may apply |
Fees, such as appraisals, closing costs, legal fees, origination fees, points, and other fees, may apply |
No fees for personal loans apply |
|
Home Ownership |
Home ownership/ home equity required |
Home ownership/ home equity required |
Home ownership/ home equity not required |
|
Interest Rate |
· May be lower than a personal loan · Fixed for the term of the loan, unless you have a variable rate loan |
· May be lower than a personal loan · Fixed for the term of the loan, unless you have a variable rate loan |
· May be higher than a home equity loan or cash out mortgage refinancing · Fixed for the term of the loan |
|
Tax Deductibility |
Interest may be tax deductible (consult your tax advisor) |
Interest may be tax deductible (consult your tax advisor) |
Interest is not tax deductible |
|
Term |
Fixed for a certain number of months |
Fixed for a certain number of months |
Fixed for a certain number of months |
Our Debt Consolidation page has more details about our debt consolidation options.
Related Links:
Debt Consolidation Checklist
Debt Consolidation Q&A
How Debt Consolidation May Improve Your Credit
These are general recommendations not applicable to all financial situations. Every financial situation is unique. Further, the suggestions and recommendations contained within the content provided are not an assurance of any future result. Be sure to discuss your specific financial circumstances with a legal or financial expert before you take action. Contact us for more information.
