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Debt Consolidation Loans
To determine if a debt consolidation loan is the right solution for you think about these common requirements:
Do you have an asset to secure the loan?
Debt consolidation loans are often only approved if they are secured against an asset you many have. Your home is the most typical asset used to secure a debt consolidation loan. If you don’t own a home or if you have little equity in your home, you may not be able to get a debt consolidation loan.
What is your credit score?
Since you are applying for a loan you will need to have a good credit score to get approved. If you have a questionable credit score then your interest rate may be very high. If you have poor credit you may not qualify for the consolidation loan.
Can you afford the cost of the loan over its repayment term?
If you take out a home equity loan to pay off your credit card debts this will mean that you will essentially be transferring the credit card debt onto your mortgage. The longer the term of your loan the more interest you will pay on that debt.
Home equity loan amount: $20,000
Interest Rate: 10%
Repayment Term: 15 years
Monthly Payment: $268.65
This loan will really cost you: $48,357.23
Are you willing to risk loosing your asset you put up to secure the loan?
If you can’t pay the minimum payments on your loan and you default on that loan the bank will take the asset that is securing that loan. In other words you could loose your home! This is how many people loose their home to foreclosure.
These are all factors you should seriously consider before deciding on a debt consolidation loan.