When a person is facing loan problems (heavy amount, high interest rates), debt consolidation can help them pay off the loan faster and overall save their money. Before taking a loan, take account of potential benefits & drawback of every option. Debts rack up because of the interest charges. The balance grows over time. People repay more than originally borrowed.
The principle behind debt consolidation is to get a lower interest rate and pay off accumulated debt faster. There are various options available for that. One of them is credit card balance transfers. But you need to be cautious of what company you pick. Debt consolidation companies like americorfunding.com are facing a lot of complaints regarding their services.
On the other hand, there are credit card companies, that allow transfer from higher-interest balance to a new card. This gives 0% or other low interest rate for a limited period. If someone pays the debt in good amount in limited period they can save a lot of money. But remember some charge a balance transfer fee. If the fee is too high the whole purpose of balance transfer is marred. Plus the time to pay off the balance is short- between nine to 21 months.
Another option is Home equity loan. One can borrow money against equity to consolidate debt. Borrowed amount is equal to the equity one holds but the available value might be sufficient to pay off the loan. It can be risky because home serves as collateral to secure the loan. So if someone falls behind on payments they might lose their home.
Certain people can take out a 401(k) loan to pay off their debt. What is negative about this option is if one doesn’t pay on time, the unpaid balance will count as a distribution. Plus there can be hefty tax bill. Another way to consolidate your debt is to take a personal loan if the interest rate is good.
