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Debt consolidation loans can make debt burdens more manageable, but they will only help you improve your credit in the long run if you stop taking on new debt.For example, a debt consolidation loan may help you pay off your existing credit card balances.
For another thing, interest on mortgages is generally tax deductible, which can further reduce the effective interest rate you are paying.The potential drawback of using home equity to make existing debts more manageable?Like any mortgage, a home equity loan is secured by your home.Whatever type of debt consolidation loan you decide upon, be sure to shop around for the best loan terms. The lowest interest rate for the size and type of loan you choose is one thing.Another important consideration is a monthly payment that fits into your budget and allows you to pay off your debt within a reasonable period of time.The specifics of how consolidation works will vary by the type of debt you have and the method you choose.
“Depending on the type of consolidation, there are firms that will negotiate any sort of debt that’s out there,” said Rod Griffin, director of consumer education for the credit bureau Experian.
One option for home owners is to use equity in their homes as the basis for consolidation loans.
In order to do this, your house needs to be worth significantly more than the remaining balance of loans against the property.
There are notable advantages to using a home equity loan for debt consolidation, but also an important caveat.
The advantage of using home equity to consolidate debts is that it can significantly reduce your borrowing costs.
This means following a budget that does not include taking on more debt, and making all your payments on time.