Credit Consolidation - Choosing The Best Way

If you are considering going in for credit consolidation using the equity of your home to pay off the debts that you owe to the various creditors, then there are four options to choose from. Let me give you a brief insight into each of them.

Refinance To Get Cash
The first option is to refinance. It is very important for you to understand the concept of refinancing. When you refinance a loan, you borrow a loan amount that is much more than what you currently owe to the different lenders. You pay off all your existing loans and carry the difference of cash. It is obvious that now you have to pay a larger amount of sum, but the reason why most people prefer to use this credit consolidation method is that it charges you a much lower rate of interest. This way, when you compare the amount of interest that you had been paying earlier on the various kinds of debts with what you are paying now, you will find that you can save a great deal of amount per year. What is more, because of the lowest rate of interest, even the monthly installment will also get reduced to a much lower amount.

Availing A Home Equity Loan
You may also choose to go in for credit consolidation by availing a home equity loan. This is a secured loan where the equity of your home is used as collateral against the loan amount. This loan is usually referred to as a second mortgage. When you choose to use this option, you get an easy opportunity to turn the equity of your home into cash. The good news is that, in order to do so, you do not have to refinance your first mortgage. You can pay off your existing debts using the cash borrowed through the home equity loan. Another great thing about this type of credit consolidation is that it takes lesser time than you would have needed to spend in order to refinance your first mortgage. Therefore, if you are homeowner, you are recommended to go for this option.

Home Equity Line Of Credit
A home equity line of credit is quite similar to a credit card. The only difference is that, in this case, the equity of your home is used as the revolving line of credit. The great thing about this type of credit consolidation is that you need to repay the amount only when you use the money. The interest will not be charged on the unused amount.

No matter which option you choose to go for, make sure that you regularly make the monthly installments in a timely manner.

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