Debt is a real problem these days, with the average American household owing more than $8,000 on their credit cards alone. Add to that a car payment (or two); student loans; personal loans and more, and you can well imagine the stress of owing too much.
So, what can you do to make paying back your debt easier – and faster? For those can make a disciplined plan, taking out a low interest debt consolidation loan can be the answer. Of course, pooling your current bills into a single payment will only work if you make a commitment to not accrue nay more debt! Otherwise you will only succeed in adding to your financial problems. Once you have taken the necessary steps to curb your spending, then feel free to consider your loan options.
Assuming that your credit is still in good standing and you do not owe more than most banks offer in personal loans, then taking out this type of low interest unsecured loan may be a good option. Keep in mind that while interest rates can be quite reasonable for those with a higher credit score, personal loans do tend to come with a higher interest rate than loans backed by some sort of collateral. Still, it is an option worth investigating.
Low Interest Credit Card Loans
Another good option these days for those who are every disciplined and want to pay off their debt quickly (usually within a year), is to consolidate those outstanding balances onto a single low interest credit card. This can be done with a balance transfer that usually costs about 3-5% of the balance in fees. Plus, you will pay monthly interest. However, many credit card services offer their best customers the opportunity to obtain this type of balance transfer for a short period of time (usually around 12 months) at a 0% or 1-2% interest rate. This will allow the vast majority of your payment to go straight towards the balance principle. Of course, be prepared to pay a much higher rate of at least 20-30% after the initial promotional term ends. Still, if you have the discipline to pay off that balance within the low interest term, you can save hundreds in interest costs and get your debt paid down more quickly than you could otherwise.
Equity Credit Loans
If you are lucky enough to have a sufficient amount of equity left in your home after your mortgage to cover your other debt, it may be possible to obtain a low interest debt consolidation loan via a fixed rate home equity loan or line of credit.
When taking an equity loan, you will likely be given a set amount of money for a fixed rate and term. This is usually the best option for paying down debt as quickly and efficiently as possible. Equity credit lines have an adjustable rate (albeit lower than standard loans), that fluctuate monthly. In addition, the equity line only requires you to pay the interest on the balance, which can keep payments low when needed.
The benefit of using these two consolidation options is twofold: interest is lower, plus that interest is also tax deductible. Of course, this benefits do not come without a real cost – putting your home on at risk of foreclosure should you default on the loan.
The last option for low interest debt consolidation loans is to completely refinance your mortgage, taking enough extra out of your home to pay off your other debt. Since you can spread the payments out over a much longer period of time, your payments can be dramatically lower with this type of loan.
Figuring Out Your Best Options
When looking at all of the different low interest debt consolidation options available, consider these important factors:
- Loan Fees. Look to see what type of costs and fees are associated with your loan. Mortgages may come with points; credit card transfer fees and more. Calculating the true cost of the loan may help make your decision easier.
- The Term of the Loan. Consider how long it will take you to pay off this debt when deciding on a loan option. For instance, an interest only equity line of credit will likely cost you thousands more in the long run unless you are disciplined enough to make regular principle payments every month.
- The Interest Rate. Consider the interest rate when calculating the value of a loan. But remember, a 4% mortgage for 30 years is going to cost you a lot more than a 7% personal loan for 10 years.
As you can see, there are quite a few options for getting your debt payments under control. Of course, finding a low interest debt consolidation loan option that works for your situation is not always easy; but it can help you to pay off all of those small debts and give you a way to streamline your finances into a single low interest payment each month.