It is easy to get into debt trouble, but it is much more difficult to get out of it. One of the challenges of owing money to various financial institutions is it is hard for you to keep track of your payments.
If you have debt, you might not think it is a good idea for you to borrow additional money to pay the loans. After all, aren’t you trying to remove the debt from your life?
Why Use Loans to Get Out of Debt
As much as you want your debt to disappear, that will not happen. You must develop a strategy to make your debt go away.
Consider this example to illustrate why using loans to eliminate debt makes good financial sense. Joe has 6 credit cards that are maxed out. Each of his credit cards has different interest rates, due dates and minimum amounts that are due.
Consequently, it has been difficult for him to pay each bill on time every month. Late payments have resulted in higher interest rates and fees. Joe owes thousands of dollars in addition to the principal balances on his cards.
If Joe decides that he wants to get a loan to pay off his debts, he will benefit in a few ways.
- Lower interest rates
- A single monthly payment
- Faster payoff time
Joe’s example clearly shows you how smart it is to have one loan that covers all of your debt. As Joe works to repay his debt, it will be a hassle-free experience for him.
Types of Loans to Get Out of Debt
Finding a loan that makes it easier for you to get out of debt takes a lot of careful research. Depending on your credit history, there are a few options that might be right for you.
1. Consolidation loans – Putting all of your loans in one place makes it easy for you to monitor the impact of your monthly payments. Consolidation loans provide you with the opportunity to get a loan that will pay off your high-interest loans.
These loans can be secured or unsecured. Secured loans require you to use collateral to guarantee the loan. If you do not repay these loans, you can lose your rights to the collateral. In most instances, secured loans are the only options for consumers with subprime credit.
Unsecured loans require you to have a credit history that is acceptable to the lender. These loans do not require you to offer collateral to guarantee the loan.
2. Title loans – When you are approved for this type of loan, you do not have to submit to a credit check. Your vehicle is used as collateral to secure the debt.
3. Home Equity Lines of Credit and Loans – One of the benefits of owning a home with a significant amount of equity is you can withdraw it when you need money. This includes paying off other debts such as car loans and medical debt.
If used appropriately, loans can help you eliminate debt. Before you get a loan, be certain that you are ready to get rid of the habits that initially caused your debt.