The Easiest Debt Consolidation Methods
There are several types of debt consolidation methods you can use to lower your payments, lower your interest rates, and more. Take a look at some of the easiest debt consolidation methods available to you below.
A balance transfer is a type of credit card transaction that occurs when debt moves from one account to another. This type of debt consolidation is generally only used for credit card debt. It can be beneficial to know that you’ll get a lower interest rate that doesn’t go up later.
Home Equity Line of Credit (HELOC)
A home equity line of credit (HELOC) is a type of second mortgage that lets you borrow against the equity in your home. You receive a revolving line of credit, which can be replenished once you reach a predefined credit limit, but only as long as you make interest or minimum payments throughout what is known as your drawdown period .
When you reach the end of your draw period, you enter repayment mode and must make full payment of interest and principal. A lender typically lets you borrow about 80% of your home’s equity.
However, it should be noted that HELOCs use your home as collateral for the loan. This means you must have equity in a home to get one, you could also lose your home if you stop paying back the amount you borrowed.
This type of loan can be beneficial for homeowners who know they are in a strong financial position to make their payments, who will also benefit from a lower interest rate and pay less overall.
Please note that Rocket Mortgage® does not currently offer HELOCs.
Home Equity Loan
A home equity loan is also a second mortgage and debt consolidation strategy that allows you to tap into the equity in your home. Lenders typically allow you to borrow around 80% of your home’s equity with a home equity loan. You will receive a lump sum which you repay with a fixed interest rate based on a fixed payment schedule. Just like with a HELOC, you will be putting your home up as collateral for a home equity loan.
Similar to a HELOC, it’s a good idea to have confidence that you can make your payments throughout the life of your loan and that you’re okay with the debt consolidation for mortgage strategy. Plus, you’ll want to make sure you pay less over time with this option than if you kept all your loans separate.
Please note that Rocket Mortgage does not offer home equity loans at this time.
Cash Refinance Loan
A cash refinance is an option that replaces an old mortgage with a new one whose amount is greater than the amount originally due. It is a method of debt consolidation reserved for mortgage holders. You’ll be tapping into the equity in your home when you opt for a cash refinance.
If you want to transfer to one convenient payment and are comfortable with the idea of borrowing against the equity in your home, a cash-out refinance might be a good decision.