Personal Debt Consolidation Through Credit Card Balance Transfers And Home ...

There are some indications that certain consumers are beginning to rely on credit less and less, but when it comes to paying off high levels of debt, the options that consumers have been using differ and, in many cases, consumers are in a position where their financial life may have taken a hit for one reason or another and affordability may be an issue. Here in the month of June, many consumers who are looking for ways to repay their debts at an affordable cost, in terms of month-to-month payments, have usually been those who have considered debt consolidation as a way to find affordable opportunities to erase what they owe, after cutting off their spending habits that are unnecessary and have led to their current debt situation.

The question that many have though, usually centers around what type of personal debt consolidation loan option is available for their particular situation. While there are personal loans that can be used to consolidate debts, some consumers have been researching credit card balance transfer opportunities that are currently in place by many banks and, obviously, there are also home equity loans that consumers often turn to as a way to get their debt under control. However, there are a great deal of differing opinions in the area of debt consolidation and debt repayment, so consumers need to take a great deal of caution before entering into any type of debt consolidation opportunity that may be present in their financial life.

Usually, consumers will review their financial predicament before making a major decision, but others simply jump at the chance to consolidate their debts because they see a low interest rate or a minimum monthly payment that is more affordable than combined payments of multiple debts. There are always drawbacks when it comes to debt consolidation though, and this is where options like personal loans, balance transfer credit cards, and home equity loans must be scrutinized by a potential borrower before any decision is made.

Obviously, personal loans can be affordable but may take longer to repay and, even with interest rates that can be low, consumers still may pay a higher overall cost. While this is not an issue for some, as certain consumers are only worried about keeping their credit score intact, when it comes to balance transfer credit cards aspects like the introductory rate and length of the introductory period where this rate will apply to balance transfers, fees that may be associated with a particular credit card that will allow balance transfers, and what an interest rate may be on a particular card after the introductory rate has expired will all be considerations that a consumer must make.

No Free Lunch Calculating the True Costs of a No Cost Home Equity Loan

An increasingly popular financial product is a no cost home equity loan and no cost refinance loans . Many homeowners seek these loans for various reasons. Debt consolidation , college tuition, and investment opportunities are common purposes for which these loans are utilized apart from various other not so common purposes.

No cost home equity loans are advanced against the equity in one’s home. For instance, a particular home may be worth 100,000. If the current mortgage has an outstanding balance of 70,000, then there is 30,000 equity. This 30,000 equity represents the homeowner’s interest in the property beyond any outstanding debt.

Traditional home equity loans carry myriad fees. Common examples include appraisals, title searches, and document preparation fees. These loan-related expenditures are commonly known as “closing costs”. If a homeowner borrowed 20,000 and had closing costs of 1,500, only 18,500 would be disbursed upon loan closing. The total debt obligation would be the full 20,000 however.

Refinance loans operate in the same manner, except any existing debt is included in the loan amount. In the above example, the outstanding mortgage balance would be added to any additional amount borrowed. If 20,000 is desired, a new loan for 90,000 is made. After payoff of the existing mortgage, the homeowner receives the remaining 20,000 loan proceeds.

No cost refinance loans and a no cost home equity loan are misnomers, however. In “no cost” loans, lenders absorb the initial costs so that the borrower receives the full loan proceeds. The interest rates for “no cost” loans are substantially higher than those of conventional loans, however. The higher interest gives the lender a greater long-term yield, thereby compensating for higher initial costs. Prospective borrowers should carefully compare the terms of any proposed “no cost” loan with those of traditional loans. Over time, the much higher interest rates of “no cost” loans can cost more than you think.

Cincinnati Magazine

Cincinnati Magazine

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