When it comes to Debt relief advice for Las Vegas residents, the idea of going into debt to get out of debt might sound ridiculous. Still, it can be a useful approach – under the right circumstances.
People have long used Debt Consolidation to pay off their debts more easily.
However, what is good for some may not be suitable for others. This begs the question: when are debt consolidation loans a good idea?
What are debt consolidation loans?
We’ve all heard the old adage, “Don’t put all your eggs in one basket. While this might be good advice in general, when it comes to eliminating debt, ignoring it could be very helpful to you.
To make debt consolidation, a person takes out a low-interest loan in an amount capable of encompassing all of their high-interest debt and uses the proceeds to pay those debts in full. The person then ends up with a monthly payment, ideally at a lower interest rate.
This can lead to considerable savings and make it easier to manage their debts. In some cases, the payment on the consolidation loan may also be less than the total of all consolidated bills, which can free up cash for other purposes.
Types of Consolidation Loans
In most cases, people seeking Debt Consolidation Tips for Las Vegas Residents (or anywhere else for that matter) will look at one of three types of loans. These include personal loans, balance transfer credit cards and home equity loans.
Personal loans, also known as signature loans, are beneficial in that they generally have lower interest rates than the credit card debt that most people consolidate. They also come with a fixed interest rate and specific repayment terms. These features make it easier to budget around a personal loan.
They are called signature loans because the borrower’s signature is the only collateral required to obtain the loan. For this reason, you must have a very strong credit rating to qualify.
Credit cards with balance transfer, as the term suggests, moving credit card debt from one card to another. The incentive to do so usually takes the form of a period during which no interest will accrue (a zero percent transfer offer). Or an exceptionally attractive rate (such as one percent or less) will be applied during the “introductory period”.
The key to the success of this strategy is to avoid transferring more debt than can be repaid during the grace period. Interest rates usually skyrocket at the end of the introductory period. Additionally, some of these transfer offers will apply interest on the outstanding balance retroactively – up to the date of the transfer.
Home Equity Loans are generally the least expensive approach to consolidating debt. That said, care should be taken that the fees that come with a home equity loan don’t make this strategy more expensive than staying the course with existing debt. Home equity loan interest rates tend to be the lowest of these three options because home equity loans are secured by your home.
In other words, failure to pay a home equity loan could result in foreclosure. Many financial gurus advise against this approach because it swaps unsecured debt for secured debt. However, if you’re confident you can repay the loan, this is the best option of the three, assuming you have the equity in your home.
Is consolidation a good idea?
So, are debt consolidation loans a good idea?
As with so many other things in life, the answer is “It depends”. One of the most important things to remember when using debt consolidation is to avoid creating new debt until you have paid off the consolidation. Otherwise, you are just digging a deeper hole for yourself.
This can be especially tempting because suddenly all of your credit accounts will appear to have zero balances. However, it is important to recognize that taking out a consolidation loan does not pay off your debt. Rather, it simply moves it around to make it more manageable.
If you can easily meet the terms of the consolidation, this tactic may work for you. However, it will only make things worse if you can’t.
