If you want to get a loan to consolidate your debt, you should get a personal signature loan. You get a debt consolidation signature loan because you can’t pay for the high interest of your current debt. So, the personal loan that apply to consolidate your existing debts must have a lower interest fee. Not only must you make sure the interest fee is lower but you also must make sure you can afford to make the monthly payment.
You should try to find a debt consolidation personal loan that has the least fees. Ideally, the loan should waive fees such as the penalty and late fees. Most online loans will charge 3% – 5% of origination fee but there are a few that would waive the origination fee. When you sign up for the loan online, they will let you know whether you get approved by email. In the email, if you get approved, they will present you with a few options including interest rate and loan term.
Usually, a longer loan term has cheaper monthly payment but it will cost more in interest fees in the long term. Shorter loan term has more expensive monthly payment but you save a lot in the interest fees. You should choose the one that best fits your needs depending on your capability to pay back. Nowadays, it is easy to qualify for a debt consolidation signature loan online. Online lenders has a more simple loan approval process than bank and they usually release the funds in less than 2 weeks.
Using a personal loan to consolidate your debt is better than borrowing against your home equity, for example, taking out a HELOC loan. In a HELOC loan or a home equity mortgage loan, with some lenders you can borrow up to 85% of your home equity if you have a good credit profile. It is a form of secured loan as you use your house as a security for the loan.
You can lose your home to the bank when you fail to keep up with the payment. Therefore, it ca e risky especially for those who are in a difficult financial circumstances and late behind many bills. You also face the risk of owing more money to the bank if the value of your house drops in the market.
Debt consolidation only helps you to get out of the debt problem on the surface. It is up to you to make the decision to control yourself in spending money if you want to get out of the debt cycle. It is recommended that you stop spending money on your credit card while paying back the debt consolidation loan. Doing so can prevent you from wrecking further more debts while you are trying to settle your existing debts.