6 Things You May Not Know about Debt Consolidation

Consolidating debt can be a good thing when multiple credit accounts begin to add up. With various credit cards and installment loans, all with different interest rates and terms, sometimes it can be a bit confusing when making payments. Too many accounts and it becomes easier to miss a payment or assessed a late fee. Your credit report won’t reflect a late payment unless it’s more than 30 days past the due date but the creditor notices and you’re often hit with a late fee or a higher rate. When thinking about consolidating your debt, here are some things you absolutely must know before you proceed.

Terms are Different.  Just as a credit card will have different terms than say an automobile loan, so too can the type of debt consolidation loan. Such loans can have fixed or variable rates and have terms ranging from 5, 10 and even 30 years. Know in advance what you’re getting into.

Longer the Term, the Lower the Payment. A consolidation loan that has a longer term, say one over 10 years, the monthly payment will be lower than a shorter term loan using the same interest rate. Yet while the payment is lower, the long term interest is greater.

Don’t Use a Consolidation Service.  There are companies that search for those who might be a candidate for a debt consolidation loan, those with account balances near or over credit limits. These companies charge a fee for their services and they do what you can do on your own for free.

Doesn’t Go Away. Understand that you’re not getting rid of debt but putting all of most of your outstanding debt into one more manageable account. But the debt doesn’t vanish and neither do your credit cards unless you get rid of them. If someone gets a consolidation loan and then begins charging again, they’re in a worse situation than they were before.

Refinance Option. If you’re in the process of refinancing your mortgage, you might want to consider paying off some or all of your outstanding debt instead of getting a consolidation loan. The absolute lowest rates for a consolidation loan are associated with a cash-out refinance.

Consider an Equity Loan. If you have a good interest rate on your mortgage and there is no need to refinance, you can also tap into your home equity and get a home equity loan. A home equity loan has extremely low rates and is a relatively simple process to get an approval.

For more information or questions about mortgage loans,
Please visit Majestic Home Loan

Or Call  (855) 757-8748

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