Using Debt Consolidation Loans

[May 23, 2010.]

 

A debt consolidation plan could save you hundreds or even thousands of dollars over time. If you are looking for a better way to pay off several debts, check out the following options for consolidating debt.

Use Existing Credit Card or Line of Credit

You may not have to apply for a new debt consolidation loan to pay off bills. An existing home equity line of credit (HELOC) can be used instead of a new loan. A line of credit allows you to combine your debts so that you have one monthly payment, allowing you to keep better track of your bills. If you have a lot of credit card debt, a line of credit should allow you to significantly lower the amount of interest paid.

While a credit card with an unused balance can also be used to consolidate debt, this may not be the best option if the card has a high interest rate. Avoid using credit cards to consolidate debt unless you have a zero or low interest rate for at least six months to a year. That can give you enough time to earn extra cash to pay off debt.

Personal Loans to Consolidate Debt

Without existing credit lines you may decide to apply for a personal loan to consolidate debt. A debt consolidation loan should only be used for the purpose of paying off existing debt. It is a bad idea to borrow a personal loan and use it to make new purchases. Do not borrow money if you can't trust yourself not to run up more debt.

Improve Your Credit

Anytime you borrow more money it's likely to affect your credit score. If you have maxed out credit cards and are late with payments, you may see your credit score drop, if you do even qualify for a loan. But if you generally handle credit responsibly by making payments on time and paying at least the minimum payments, using a loan to consolidate debt could help you repair so-so credit.

Where to Get a Loan

Do you believe that a personal loan can help you consolidate debt? Shop around to compare your options for borrowing money. Look for loan quotes and determine if it's the right move for you.

 

About 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.