The lowest debt consolidation rates in history may be available right now. Do you have multiple balances on credit cards or loans at high-interest rates? You could be saving yourself money and freeing up your cash flow by consolidating your debts. Consolidating your debts has never made more sense than it has right now at today’s record low interest rates. Whether you’re looking to pay off good debt or bad debt, you’ll be benefiting from among the lowest debt consolidation rates in history right now. Today, managing debt can be an achievable goal.
In this article, we’ll look at what is a debt consolidation loan, the benefits of a debt consolidation loan at today’s low rates, and the three main types of debt consolidation loans.
What is Debt Consolidation?
Debt consolidation is when you get a loan with one lender to pay off several smaller existing debts with multiple lenders. When you do this, you’re bringing all your debts together into one combined or consolidated loan with a single monthly payment. That’s why it’s referred to as debt consolidation.
The debt consolidation loan is often at a lower interest rate than the smaller debts you were paying individually, helping you save on interest and free up your cash flow.
What are the Benefits of Debt Consolidation?
Are you still not convinced that debt consolidation is worthwhile? A debt consolidation loan offers many benefits, especially at today’s low rates. Here are some of the top reasons you might consolidate your debts.
Paying Off Your Debt Sooner and Saving on Interest
This especially makes sense in today’s record low interest rates environment. Low rates don’t help savers, but they do assist those in debt. If you’re one of the millions of Canadians with some form of debt, you can take advantage of today’s low rates by consolidating your various debts into a single line of credit or loan at a much lower interest rate.
Making Your Financial Life Easier
Are you overwhelmed with debts? Do you find it tough to keep up with the various credit card debts, personal loans, and lines of credit that you have and remember to pay them on time? Debt consolidation loans help make your finances simpler by only having one monthly payment to worry about. No longer will you have that feeling of being overwhelmed at the end of the month when you have to remember to pay off all the credit cards you have in your wallet.
Do you dread paying your debts each month because it’s such a time-consuming process? You’re not alone. It can take a lot of time to review the debts you have outstanding and pay them at the end of the month.
Imagine if you have five credit cards. That’s five credit card statements you’ll need to review and pay.
Sure, you could set up automatic payments so the money automatically comes from your bank account, but that leaves you open to fraud. By not taking the time to review each of your statements, someone could have been fraudulently using your credit card to charge products and services without you even knowing it.
By consolidating your debts into one monthly payment, paying your debt at the end of a month won’t be such a time-consuming process anymore.
Free Up Your Cash Flow
Paying off several debts at high-interest rates can be quite a time-consuming process. However, when the interest rates of your debts are lower, more of your money goes towards principal and less towards interest. When that happens, you can free up more of your cash flow for other important things.
If the COVID-19 pandemic has led to a reduction in your income, consolidating your debts could mean freeing up more of your cash flow to go towards other financial priorities. Or, if you don’t have other financial priorities, you could make extra payments against your consolidated loan to pay it off even sooner.
Unlock Some of the Equity in Your Home
Do you have a lot of untapped equity sitting in your home? By refinancing your mortgage, you could leverage the equity in your home and put it to work for you instead of the other way around. Home Equity Lines of Credit (HELOCs) typically come at a lower interest rate than debt consolidation loans, making it one more way to save you money on interest at today’s low rates.
Types of Debt Consolidation
Similar to other types of debt, debt consolidation loans come in different shapes and sizes. There are three main ways you can consolidate your debts: through a personal loan, unsecured line of credit, and HELOC. Let’s look at each of these debt consolidation solutions now.
The main benefit of a personal loan is that it forces you to pay off your debts by a specific date. Unlike an unsecured line of credit or HELOC where you can make interest-only payments, with a personal loan, you make payments that comprise of both interest and principal.
Depending on what your budget allows, you could go with a personal loan term between one and five years or longer. The benefit of a shorter loan term is that you’ll pay off your debts sooner. However, the monthly payment will be higher, so you have to make sure you’ll be able to handle the higher fee.
A personal loan can be a great way to take advantage of today’s low interest rates. Locking into a fixed rate can protect you from higher interest rates while simultaneously paying down your debts. You can combine your debts into one single payment while saving on interest at the same time.
Personal loans make the most sense for those who may lack financial discipline. By being forced to make certain monthly payments, you’ll be unable to spend on things you can’t afford.
Unsecured Line of Credit
An unsecured line of credit is unsecured because it doesn’t have any asset backing it. For that reason, it tends to come with a higher interest rate.
Unsecured lines of credit offer a flexible way to pay down your debt. A line of credit is a revolving form of credit. It works a lot like a credit card. You have credit available to you up to a certain limit.
This offers you a lot of flexibility as you can use your line of credit as you see fit. However, that also leaves you open to the temptation to spend.
A line of credit can be great in theory if you’re financially disciplined. Otherwise, you could end up with more debt than before. This has the potential to hurt your credit history.
That’s because anytime your outstanding balance on revolving credit goes above 50 percent of your credit limit, it tends to drag down your credit score. The desire to help your credit score by taking out an unsecured line of credit can end up hurting it.
Home Equity Line of Credit
You can unlock some of the equity and put it to work for you with a HELOC if:
- You’re purchasing a home and making at least a 20 percent down payment, or
- You already have a home and have at least 20 percent equity in the property
A HELOC is considered a secured line of credit. That’s because, unlike an unsecured line of credit, it has an asset backing it. For that reason, there’s a lower risk to the lender. If you are unable to meet your payment obligations, the lender can sell the asset that’s acting as security.
HELOCs enable you to get the lowest debt consolidation loan rates. You can expect to get an even lower rate on HELOC than you would on an unsecured line of credit. You can expect to pay anywhere between Prime Rate (2.45 percent) plus 0.5 percent, plus one percent.
With Prime Rates lower these days due to the COVID-19 pandemic, you can expect to save even more money.
However, a HELOC isn’t without its downsides. If you’re not financially disciplined, you could find yourself with even more debt than you started with.
Also, HELOC may come with fees. Watch for fees like origination fees and other fees. That may make a low rate less attractive. You can use a debt consolidation calculator to help determine if it’s worthwhile to take out a HELOC even with the fees.
Are you looking for the lowest debt consolidation rates, but you’re not sure how to move forward? Are you not sure about the type of debt consolidation loan to take out? Reach out to our offices today for some guidance today on your way to a brighter financial future tomorrow.