Debt Consolidation Loan Programs


Debt consolidation loans work by getting a cash out refinance or a home equity loan, which is used to pay off bills or consolidate high interest debts into one low rate mortgage loan. A fixed rate debt consolidation loan is fully amortized, meaning it's paid off at the end of the term. Options may include zero points, bad credit programs, FHA loan, 5 year ARM, 15 and 30 year fixed rates.

Home equity consolidation loans are designed to save money by converting high interest rates and compound interest into a lower rate with tax deductible simple interest. Saving on a tax deduction may be possible when a consolidation loan is placed on an owner occupied residence.

Here's a loan example:  $40,000 of debt at an average credit card rate of 15%, might have a payment of about $560 per month, when amortized over a 15 year loan term. Even if a debt consolidation loan rate was 8%, the payment would be about $382 over the same time period, which could save $178 per month.

If your goal is pay off your debt as soon as possible, the loan term could be reduced to about 8 years by applying the monthly savings to the loan payments.

In addition to reducing your rates, eliminating compound interest can add to your total monthly savings. In this example, you may save another $50 per month by converting to a simple interest consolidation loan, instead of making minimum payments on credit cards.

It's possible that daily compounded interest on credit cards can accumulate to more than the minimum monthly payments, which can result in paying interest on the accumulating interest. Consolidating debts into a fixed rate loan can help eliminate the never-ending minimum payment cycle. After loan documents are signed, you have a 3 day right to cancel if you change your mind.