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Use Debt Consolidation Loans Wisely
By Francine L. HuffMortgage Credit Problems Columnist
A debt consolidation loan can help get your debt load under control. Under the best circumstances a debt consolidation plan will offer a lower interest rate and help you make lower monthly minimum payments. But handle that debt consolidation loan irresponsibly and you just may find yourself in an even deeper financial hole.
Consolidation Loan Options
You can consolidate debt with a variety of loan products. If you have equity in your home you can get a debt consolidation mortgage loan that wraps your credit-card debt and mortgage into one loan. Other ways to consolidate debt are to take out home equity loans or use credit-card balance transfer offers. When you tap your home equity you can either get a loan with a fixed interest rate or get a revolving line of credit with a fluctuating rate.Pros of Debt Consolidation
On the one hand a debt consolidation loan can help you get an overview of your entire debt situation so you can make up a realistic payment plan you can stick with. Debt consolidation home loans generally have a lower interest rate than credit cards so you'll shave money off your monthly payments. You also may increase your FICO score if you take on a debt consolidation loan and begin to tackle your debt.Cons of Debt Consolidation
However, it's important not to take on new debts once you've gotten a consolidation loan. If you don't make payments to your home equity loan you could lose your house. Also, making late payments on a debt consolidation loan will negatively impact your credit report. There's also the possibility that interest rates will rise and your payments will go up if you have an adjustable rate.Debt consolidation loans can help you dig your way out of debt and work toward a brighter financial future. But before getting a debt consolidation quote, make sure you understand exactly what you need to do to stick to a debt repayment plan so you can avoid any potential problems that will make your financial situation worse than it already is.
About the Author
Francine L. Huff is a freelance journalist and the author of The 25-Day Money Makeover for Women. She has appeared on a variety of TV and radio shows.
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