Those applying for a loan to pay off debts have a few things to consider before borrowing money. The purpose of getting a loan is to reduce the amount of money spent each month on separate bills. Instead of making a payment to each credit card company, paying a higher utility bill because the back amount is added to the current charges, or paying late fees on missed car payments, people are seeking the ease of one payment.
Depending on the amount of debt, that one loan payment may end up being more than the individual payments combined. Between the amount borrowed and the interest rate, is is possible to have a slightly higher payment than the original debts. There are still benefits to the loan because late fees will continue to add up, people risk losing their vehicle, or utilities may be disconnected. Just review all the loan details to be sure the payment is manageable.
Banks and credit unions will offer a lower interest rate than a private lender so it is wise to apply there first. Approval may be contingent upon a co-signer or collateral, depending on the amount requested and the credit rating of the individual. Proceed with caution if this is the case. Using a vehicle or house as collateral may get the loan approved, but may also lead to the loss of the car or house if the loan goes into default. A private lender will charge higher interest rates, but the approval process is easier. People with less than perfect credit may be able to get a loan without any collateral.
Another loan option for paying off debt is a home equity loan. The amount available is based on the accumulated equity in the home. The payment will be separate from the original mortgage, which is why this loan is often referred to as a second mortgage. Again, be careful before pursuing a loan because the burden of the total of those two payments may be overwhelming. The best thing to do is consider the current income with expenses and determine how much money can be afforded to pay off a loan. If a loan is not feasible, consider working with a debt consolidation company to negotiate with creditors and get payments reduced. The result is still one payment per month instead of many.