Consolidating Debt - 4 Different Types of Bank Loans

If your finances are in good enough shape, you may have the ability to consolidate your debts by securing a loan from a bank. This can be advantageous because the interest rate will normally be much lower. As with anything else, it really does pay to shop around a bit because some banks offer better - sometimes much better - terms than their competition. However, if you've got a long term relationship with a particular bank, it'll likely make more sense for you to do business with them.

There are 5 different types of loans you can take out with a bank when it comes to debt consolidation. Not all types will be the right fit for you and there are some that can do serious damage to those who are not able to handle credit properly. If you have any questions about which loan would be right for you, be sure to contact your financial advisor, or contact a reputable credit counselling agency.

1. Debt Consolidation Loan

As its name implies, this type of loan is for the express purpose of consolidating all of your higher interest debts into one single, easier to manage loan. Depending on what kind of shape you are in financially, you may be able to obtain this loan without any security.

However, it could be that you'll only qualify for a secured debt consolidation loan. If this is the case, you'll need to allow the bank to put a lien on one of your assets. Of course, this will mean if you can't make your payments, the bank will retrieve your asset and sell it to recover the money you owe.

If you have no assets of value, you will be asked to line someone up to cosign for you. This person will have to go through a credit check as well. Be extremely careful about going into a cosign situation. If you are unable to make payments, your cosigner will be on the hook. You risk serious damage to the relationship you have with the person who cosigned for you. Not to mention that the additional payments could cause significant financial hardship for the person who cosigns for you and their credit history could end up being damaged.

2. Home greeneasylife.com Equity Loan

DANGER! This type of loan could end up costing you your home if you are not able to keep up with payments!

This type of loan can certainly be very attractive for two reasons -

It's a pretty easy way to pay off debt and the interest rate is normally much, much lower than other debt consolidation loans.Assuming that you're not borrowing more than $100k, the interest you pay is tax deductible.

Keep the following points in mind if you decide to go down this road:

If you sell your home before the home greeneasylife.com equity loan is paid off, the open amount will be deducted from any proceeds you receive on the sale of your home.Borrow as little as possible and not the total amount you are qualified forPay the debt off as quickly as possible

Banks normally offer very easy home equity repayment terms as the longer you have the loan, the more money they will make.

Understand your legal rights

You've got a three day "cooling off period" after you sign the loan docs. If you decide to cancel within the 3 days, the bank must cancel the loan and return any fees you've paid.

Watch out for predatory home equity lenders

There are plenty of unscrupulous lenders out there who will encourage you to lie on your loan application so you can borrow more money and so that they will get a higher commission. If you run into these type of people, RUN away and NEVER do business with them, as tempting as it may seem. Not only do you run the risk of go to jail, you could end up losing your home due to being unable to repay the debt.

3. Home Equity Line of Credit (HELOC)

A HELOC functions much in the same way a variable rate credit card. You're approved to borrow up to a certain amount. You'll be able to tap your credit line anytime you want up to the amount you are approved for, generally by simply writing a check. Generally, you'll be able to get up to 80% of the value of your equity in the home, but less if your credit is less than stellar.

As with variable interest rate credit cards, you'll want to think long and hard before securing a HELOC, especially if you have spending issues. Screw this up by not making payments and you could end up losing your home.

4. Refinance your mortgage

The fourth debt consolidation loan to consider is the refinancing of your home mortgage. This method means you'll get a brand new mortgage for your home and will use part of the new loan to pay off all of your debts. This can be a great way to go if you realize a new loan with a significantly lower interest rate.

But, there are two reasons you'd NOT want to do this:

If you've been paying on your mortgage for more than ten years - assuming it's a 30 year mortgage.You can't afford the payments on the new loan

This should go without saying, because if you fall behind, your lender will likely initiate foreclosure proceedings.

Bruce has been helping folks with personal finance issues for several years. He started writing about them online in 2008. In addition to his writing, Bruce also operates a number of informative web sites. You can check out his latest website here: digitalscanners.org Digital Scanners featuring the digitalscanners.org/Hand-Held-Scanner.html Hand Held Scanner