Debt Consolidation Loan – What Is It?

     A Debt Consolidation Loan is a loan that is used to repay your debts faster at a lower interest rate and a lower monthly payment.
     Debt Consolidation Loans are a great way to combine monthly payments of some of your bills. Some people just have too many bills and have a tough time keeping everything paid on time. By using a consolidation loan you can payoff several credit accounts to have just one payment to make.

Get Home Equity Loan To Payoff Debt
     You must go to a lender that offers debt consolidation loans like Lending Tree or E Loan. You may also go to your local bank or credit union to get a loan to payoff your debt. If you are a homeowner with some equity in your home, use can get a home equity loan to consolidate your debt. This has one great advantage as the mortgage interest that you pay on the home equity loan may be tax deductible. The home equity loan will probably have the best interest rate.

Personal Loan For Debt Consolidation
     Some banks offer signature loans, or personal loans that can be used to consolidate your debt. To qualify it helps that you already have an established savings and or checking account with them before you apply for a loan with them. If you have had a car loan with them, or currently still do and you have made your payments on time this will help your case to be qualified to get the loan. Typically, the bank will look at your credit history, check to see if you are employed – they will probably ask for a pay stub or two, and they might require you to have some money in the bank to "guarantee" the loan.

Balance Transfer To A Zero Percent Interest Card
     While a zero percent interest credit card might not be the best option, it can be a great option if you can pay off the card within the specified grace period. You should look around for a longer zero interest period that might last as long as a year. Credit card companies do offer these programs and they are looking for customers. People with good credit are getting harder and harder to find, so credit card companies are offering some pretty good promotional deals.
     Use the credit card company’s money to payoff your debt – this means that if they’ll give you credit without interest for a year – then that’s the best interest rate and cheapest money that you can get. They are counting on your either missing a payment upon which your interest rate will be jacked up a lot, or that you will still have a balance at the end of the year upon which your interest rate is sure to make a considerable jump up.

Use Bill Payer To Make Loan Payments
     One way to accelerate paying off your debt is to have your bills paid directly from your bank account with either a bill payer system where a check is drafted from your account and sent directly to your creditor, or they can pay your bills with electronic funds transfer. This method of paying bills automatically will prevent you from missing payments. When you miss payments, you are charged fees. Any fees that you could avoid paying could be extra money that you pay on a bill to pay it faster.
     I once had a mortgage customer who paid their payment late every month because they never got their payment in on time and they paid a fee every month. I told them to set themself up on bill payer and they haven’t missed a payment since. Every year I get a little gift card from them with a note thanking me for saving them nearly $500/yr with not missing mortgage payments anymore.
     Like I said, on line bill paying systems are great and very secure. Some banks do not charge to have your checks mailed, they just send them as part of the account package you have with them. How convenient is this? Another way to get your bills paid ontime is through automatic deduction. The company that you owe money on a regular basis might have a system to automatically deduct the amount you owe every month without having to send a check. This system works pretty well to as I use it for some of my bills.

Advantages of a Debt Consolidation Loan

Make just one payment instead of many

Typically lower interest rate than credit cards

Reflects on credit report as a loan not unsecured debt which could raise your credit scores

Have the confidence that if you stick to the payment plan you’ll pay off the debt and be debt free

Loans are typically fixed rate loans so the payment from month to month never changes

     Keep these advantages in mind as you decide how to get out of debt – will it be with a debt consolidation loan or some other method?