Types of Debt Consolidation

Getting a consolidation loan is either going to depend on your having good collateral or good credit to back up that loan. For many, the need of a consolidation loan comes at a point where having good credit is a thing of the past. For these types there are still loan options available, especially if you are a homeowner.

Home Equity Products

A home equity loan or home equity line of credit is the least credit-intensive way of managing a debt consolidation. This is because these products use the equity in your home as collateral against the loan, which means there's very little risk to the lender of not eventually being able to get a return on their loan to you. Home equity loans or lines of credit begin with an application for the loan that includes a recent appraisal of your home's value. If the value of the home is determined to be worth more than the balance of any mortgage on the property currently then the positive equity in the home may be secured as a loan or line of credit. The home equity loan will be a one-time payment to you which can usually be in an amount up to 80% of the equity value in the home. You should be very wary of home equity loan products that allow you to take up to 100% or even more of the equity in your home in a loan. These types of loans are extremely expensive and deceptive, and instead of consolidating debt to a lower rate and having an easily paid, single payment each month, you could quickly find yourself in over your head.

Credit Card Consolidation

Many people find quick debt relief from losses by consolidating using credit cards to their advantage. If your credit is sufficiently high enough to get approved for a new credit card with a large credit limit, this seemingly counter-intuitive way of getting even more credit may help you to have to pay off less of it. By applying for and being approved for a new credit card, you can use the new card to pay off your other debts or have the balance of other credit cards transferred over to it. Most credit card companies offer extremely low interest rates on credit card balance transfers so in all likelihood, you will be paying significantly less to use credit in this way than you were before. Once your old credit cards have been paid off, your credit score is likely to see a minor boost as well, but you should take care not to continue using those paid off cards or you could end up doubling your debt in no time.

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