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Consolidate Your Debt through a Home Equity Loan

Consolidate your debt through a home equity loan

Home equity loans and other options to consolidate your debt

Tackling debt doesn’t have to be an uncomfortable challenge. You have options such as picking up another job or cancelling subscriptions that you forgot you had. Those are great steps to with which to begin, but it doesn’t provide the ultimate solution to thousands of dollars’ worth of debt. For many Canadians, making the choice to take on a loan for debt consolidation is the first step to obtaining financial freedom.

When you have determined that consolidating your debt is the right choice for you, the next step is to decide the method you’d to use for the consolidation. You have the following four options, each one having their own benefits and drawbacks.

Consolidate Your Debt through a Home Equity Loan

Personal loans

Also known as long-term financing plans, installment loans, or consumer loans, loans for personal financing is one of the first loans that people default to when they make major purchases. Those looking to take out loans can receive them from financial institutions, credit unions, and alternative lenders. Borrowers can expect a lump sum to be given to them, which can range from a few hundred dollars to tens of thousands. While people use personal loans towards mortgages or vehicles, the loans can also be used towards debt consolidation.

The concept of going to the bank and requesting a loan to consolidate your debt seems rather simple. Banks provide you with the money to pay off their outstanding balances from other creditors, and you focus on repaying just the bank loan. However, many banks will conduct a background check on a potential borrower’s credit history and income. Because of such high expectations, only certain people with a steady income and exceptional credit scores can pass the stress test. In addition, they may also charge high interest rates.

On the chance that personal loans don’t work out, other opportunities to consolidate your debt are available.

Advantages:

  • No collateral required from borrower
  • Reasonable monthly payments

Disadvantages:

  • Background check from banks are required
  • Funding amount based on credit score
  • Interest rate may not be ideal

Debt management programs

Normally, people look to the bank to obtain loans for debt consolidation, but sometimes banks do not provide that opportunity. Outside of major financial institutions, credit counselling services offer debt management plans when someone’s loan application gets turned down at a bank. In terms of consolidation loans, it works similarly to a personal loan, in which the lender pays all of a person’s creditors and the borrower focuses on repaying the company that provided the funds. The company may also work with you to make financial plans for the future.

Advantages:

  • Get personalized advice
  • Comparatively low interest rates

Disadvantages:

  • Stays in your credit history for two years
  • Unable to use credit cards while in the program

Debt settlement programs

Another form of debt consolidation is through settlement programs. The way they differ from management programs is that the settlement company is in direct contact with your creditors. Debt settlement companies will try to negotiate a new deal, which may include offering money that is a little lower than your total amount of debt. Some creditors will collaborate with the settlement company, finding a new agreement by accepting a little less of the due payment. This provides a huge amount of relief because once the debt has been settled, not only do you pay towards one source with less interest, but you also could potentially pay a little less than the original total was.

Advantages:

  • Potentially pay less than the original outstanding amount
  • Resolves debt at a faster pace

Disadvantages:

  • Not every creditor is willing to work settlement companies
  • You may be asked to pay a significant portion of the debt
  • Unpaid debt could be taxable

Home equity

Homeowners, such as yourself, have built equity in their home. The longer someone owns the property, the greater the equity that is accumulated. Equity is the monetary value of the difference between the outstanding mortgage and the property’s worth. Those who have owned their home for longer naturally have more equity compared to newer homeowners. Home equity is a powerful asset that not many Canadians take advantage of.

Loans from property equity operate very similarly to personal loans. In both cases, a lump sum is advanced as loan for you to use towards your multiple debts. Some banks may even offer such loans, but still with the high standards attached to them. However, their differences are game changers. Since borrowing money from your property’s equity is a type of secured loan, choosing it has far more benefits than other types of debt consolidation solutions. They’re easier to qualify for and offer more flexibility.

Advantages:

  • Borrow from your own assets and not a third party’s
  • Credit ratings do not influence approval
  • More flexibility with loan amount

Disadvantages:

  • House acts as collateral
  • Property value could go down in some areas

Receive a home equity loan with Alpine Credits

Equity loans are a common way for Canadians to consolidate their debts. You as a homeowner collaborating with Alpine Credits allows you to access your home equity instantly. Not only can the team of financial solutions specialists guide you through the process, they can provide insight on any questions you may have about home equity while catering to your specific needs. Reach out to the team by sending a message or giving them a call. It is obligation free and every specialist has your best interests in mind.

Life after debt consolidation

Through debt consolidation, tackling your debt becomes an attainable goal. Through it, you can achieve financial freedom along with better credit ratings. One thing that is important to remember is that financial freedom is an action put into practice even after all debts have been resolved. You will still have to use credit cards and loans to make purchases. This is the opportunity for you to apply what you’ve learned in your previous experiences.

Be sure to plan your finances accordingly to make the most of your income and savings while keeping yourself from unmanageable debt. In the end, you’ll not only feel the burden of debt gone by experiencing higher credit ratings, which will allow you to have more access on important purchases.

Further reading