Bill Consolidation Loans

We offer personal loans for borrowers to use to pay off their existing debts, leaving only one bill- the loan to pay off over time. Personal loans are usually offered as 1 to 5 year term offers and can be the most beneficial option if the personal loan has a lower interest rate than all the interest rates you have across your existing debts.

Pros

• Personal loans can be easier to qualify for and quicker to receive than home equity loans or lines of credit.
• Personal loan fees are usually lower than other debt consolidation options.
• The fixed loan term and interest rate make payments predictable and easy to budget for.
• They are due the same time every month so it is easier to stick to a payment schedule.
• Terms are shorter, so you can pay off all your debt sooner.

Cons

• If you have bad credit, you may not receive a competitive interest rate.
• There is no payment flexibility with the monthly payment schedule or the loan term.
• Because terms are shorter, monthly payments are higher (although it could be similar, or even less than several of your monthly debts combined).
• Personal loans are unsecured, so they have higher interest rates than other options.

Cash out refinancing involves refinancing your current mortgage loan with a new one for an amount over what you owe – taking the difference out in cash. This is commonly done to pay off debt but may be done for other reasons such as paying for school or renovating.

Pros

• This option works best if you are able to get a mortgage interest rate that’s lower than your current one. Even better if this new rate will also be lower than the rates you’re paying on your other debts.
• Interest is usually lower than other consolidation options because this loan is secured by your home.
• The interest you pay may be tax-deductible.
• Monthly payments are lower than other options because the loan term can be stretched over 30 or more years.

Cons

• If you default on this loan, you risk foreclosure on your home.
• Using the equity in your home can negatively affect your long-term financial plans, especially if retirement is approaching.
• A cash-out refinance is essentially getting a new “first” mortgage, so closing costs can be higher than those for a HELOC or home equity loan.
• If you refinance more than 80 percent of the loan’s value, you may have to pay for mortgage insurance in addition to everything else.
• Cash out refinancing is a lengthy process and has upfront costs associated with it (new closing costs, possibly an appraisal if your lender requires it, etc.).
• With the loan spread out over 30 years, you may actually pay more interest in the long run, even if the rate is lower.

Home equity loans provide the borrower access to the equity currently into the home loan as cash, which can then be used to pay off other debts. A home equity loan does not replace the existing mortgage like a cash-out refinance does; it serves as another loan in addition to the existing mortgage.

Pros

• The loan is secured by your home, so interest rates are lower than unsecured debt consolidation options.
• Interest payments may be tax-deductible.
• Monthly payments are predictable, easy to budget for, and help you stay on schedule for paying off your debt.
• You can get a longer term for a home equity loan than you could for a personal loan.

 

Cons

• If you default on this loan, you risk foreclosure on your home.
• Using the equity in your home can negatively affect your long-term financial plans, especially if retirement is approaching.
• With the loan spread out over a longer term, you may actually pay more interest in the long run, even if the rate is lower.

HELOCs differ from home equity loans in that, instead of receiving a lump sum of cash, borrowers are allowed to borrow up to a certain amount from the equity built up in the home for the life of the loan. This money can be used to pay off existing debts.

Pros

• Like Cash Out Refinancing and home equity loan, HELOC is also a secured loan, with your home as collateral. This means that interest rates are lower and interest payments may be tax-deductible.
• You only pay back (and pay interest on) the portion of the line of credit you actually use.
• Because it works similar to a credit card, the available equity that you can borrow can be used in the event of a later emergency or major home repairs.

Cons

• Having access to a line of credit can tempt some individuals to overspend, especially if they are already having issues with handling their debt.
• Variable interest rates (between your regular loan and the line of credit) can make payments unpredictable.
• Defaulting will result in foreclosure.
• The remaining balance due at the end of a HELOC repayment period is due immediately, which can result in a balloon payment.
• You will have to pay closing costs with this option (although they are typically lower than the closing costs of a cash out refinance).

You can do this one of two ways. The first being a federal Direct Consolidation Loan and the second being a private loan (see above section for details). You can consolidate most federal student loans with a Direct Consolidation Loan, which also has its own set of pros and cons:

Pros

• You can change the extend or shorten the repayment schedule for your loans
• Potentially lower your interest rate and thus potentially lower your monthly payment.
• Deal with one lender and one loan payment instead of several.

Cons

• To receive the best refinancing terms, it requires you to have very good credit.
• If you consolidate a federal loan through a private lender, you will no longer be able to take advantage of student loan forgiveness or income-based repayment plans.