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Debt Consolidation with a Line of Credit
Debt consolidation can take many forms. One of them is a flexible type of debt consolidation loan called a line of credit debt consolidation loan. These can be either secured or unsecured. This type of loan works like a cross between a credit card and a checking account. You are told by the bank what your limit is, your interest rate and repayment terms. Then you are handed a pad of checks. You can use these checks to pay off your other debts, consolidating everything into one debt consolidation loan.
These debt consolidation loans can have some advantages. Many times, when you get a debt consolidation refinance on your home mortgage, several debts are not included, so it is not a true debt consolidation. If this happens with a line of credit, you can keep re-consolidating until all your debts are together.
For example, you have $12,500 in debt but you only qualify for $10,000 in a debt consolidation loan. By getting that debt consolidation loan as a line of credit, you can transfer $10,000 now and $2,500 later. Talk to a certified credit counselor for the best strategy. Also, as you pay off your line of credit, you have open credit available to you. This increases your credit score. A line of credit may also offer really easy repayment terms. When you get one through your bank, they can link it to your checking account. That way you are never late on your payments. After a year, your good payment history will also help your credit score.
There are a few dangers and disadvantages to lines of credit.
First, if you do not pay them down, they can become as much of a burden as a credit card, making your situation worse.
Second, if you don't stop using your other forms of credit, your debt consolidation loan just keeps growing, taking you even closer to bankruptcy.
Third, if you have a lot of debt, a line of credit probably will not be a complete debt consolidation. So you will still be left with many bills every month.
Finally, lines of credit tend to have high interest rates. These interest rates can make it harder, not easier, to pay off your debt.
These disadvantages make it imperative that you have a plan for your debt consolidation. Working without a budget will likely lead you to bankruptcy.
A line of credit is perhaps the easiest form of debt consolidation to master, since it is most like what you already know. However, it is also one of the most difficult to use to get out of debt. Only use a debt consolidation loan if you are very, very certain that you can withstand the temptation to use that extra credit. Otherwise, find another form of debt consolidation. Every person is different, so every budget and financial plan is different. Use caution and good sense when choosing your debt consolidation. There are many options for you to choose from. Use the safest one for you.
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