Debt Management Loans, Aka: Debt Consolidation Loans
A Credit Article Contributed by Brandie King
Introduction to Debt Management Loans
When you think of a debt management loan, you might not realize that what you are thinking of is actually a debt consolidation loan. There is essentially no difference between the two of them. Before you consider taking this path, though, you should learn about the different types of debt management loans that are available, then determine if this is what you actually need and want to do. A debt management loan should only be considered after you have tried everything else you possibly can, short of bankruptcy, to take care of your debts.
Debt Management Loan: Home Equity Loan
A home equity loan, which is also known as a second mortgage, is a loan where you refinance your house and use the equity you have built up to pay off your debts. The payments for those debts will then be included in the payment on your home equity loan. There are several things you need to consider before choosing this option. First is that you will have to use your house for collateral, which means that if you don't make your payments on your home equity loan then you stand to lose your house.
Second, there is the chance that the interest you pay on the home equity loan will be tax deductible. Third, a home equity loan has a fixed interest rate.
Debt Management Loan: Home Equity Line of Credit (Heloc)
A home equity line of credit is similar to a revolving credit card account. There are similarities between a home equity loan and a HELOC. You will still be refinancing your house and using the house as collateral, which means that you will still stand to lose your house if you fail to make payments on your home equity line of credit. You also will still be using the built up equity to pay off your debts, as well as lumping all of your payments into one single monthly payment.
But, unlike a home equity loan that has a set amount you can use, a HELOC works as a line of credit. You use the money to pay off debts and the amount of available credit decreases, but as you make payments on the HELOC the amount of credit available to you increases. One of the drawbacks to a HELOC is that the interest rate is calculated on a daily basis, instead of being a fixed percent, and therefore will be subject to daily fluctuations.
Debt Management Loan: Debt Consolidation Loan
A debt consolidation loan is one in which you get a loan in an amount that will allow you to pay off all, or most of, your existing debts. Unlike a home equity loan or home equity line of credit, a debt consolidation loan has nothing to do with your house or refinancing it. This types of loan actually works like a regular personal loan, but is taken out for the sole purpose of paying off your debts.
