The latest contributor to this web site has a pretty standard need for debt consolidation. Basically he spent some money on trips and home renovations, charged all of this to his credit cards and is now faced with high interest rates on the unpaid balance. Credit cards will charge upwards of 19% or more while personal loans are much lower. They can be as low as 3% at time of writing depending on credit ratings and any security that is provided by the applicant. This is a significant difference for anyone who is paying credit card debt. The savings could be put towards paying off this debt if he can be approved for a low interest debt consolidation loan.
This consumer appears to be in an excellent position to be approved for a debt consolidation loan. He has a secure job, makes decent money and has little debt other than his mortgage on his home in addition to the credit card debt. His car is paid for and he has always paid his monthly payments for utilities, taxes and debts on time. As a result he has a very good credit rating.
There are several potential solutions available for this consumer to consolidate his debt. The first is to assume a personal loan at the prevailing rates for unsecured loans and make the payments over a three to five year term. He will save money on interest, but this solution does not provide him with the flexibility he is looking for.
Another solution is to add the debt to his mortgage and spread the payments over 20 or 25 years. The disadvantage is that this will spread his payments over a long period of time and increase his mortgage. The advantage is that his monthly payments will be much lower and he will save a great deal of money on interest since the mortgage rate is secured and will be much lower.
The last solution is to apply for a line of credit, secure it with the equity in his home to obtain a low interest rate and draw on the loan as needed. This solution would allow him to consolidate his credit card debt at a low interest rate, save a great deal of interest and also provide him with the flexibility he needs to draw on the additional funds as needed when he plans to complete his additional renovation work.