If you’re trying to tackle high-interest debt or sizable installment loans by making the minimum monthly payments to multiple creditors, now may be a good time to consider consolidating your debt.
By combining multiple debts into one, you may be able to lower your interest rate, enjoy more affordable monthly payments, and pay down your debt faster, all while eliminating late fees or penalties. There are a number of factors to take into account when considering the best approach to debt consolidation, so it’s important to identify the best solution to match your financial needs.
What are my options if I’m a homeowner?
You may be able to use the equity you’ve built in your home for debt consolidation. To determine the value of your home equity, simply calculate the difference between the market value of your collateral (your home) and the balance you owe on your mortgage. By leveraging this equity to refinance your debt, you’re not increasing what you owe. You’re simply moving the debt from multiple accounts with various rates and billing dates to a single lender with a possible lower rate and a fixed repayment plan.
By consolidating your debt into a Discover Home Equity Loan, you can benefit from a fixed monthly payment schedule and eliminate the added expense of late fees / extra charges from multiple accounts. You can choose to pay off your debt faster with no repayment penalty. Plus, you may also avoid a poor credit rating which can result from not properly tracking and paying various debts. There may even be tax benefits — borrowers often can claim tax deductions on interest paid on a home equity loan. Although borrowers need to consult with their tax advisors to make sure they qualify for a deduction.
What else should I consider?
If a home equity loan seems like the right approach for you, remember that because you pledge your home as collateral, it could put your home ownership at risk if you are unable to make payments in the future. Also, even with a lower rate, depending on the term of the loan, you could actually spend more on interest over the life of the loan.
When considering debt consolidation, be mindful that if your tendency is to continue to accumulate credit card debt, you could end up with even more debt in the future. If you suddenly have credit capacity on the cards in your wallet, you may need to change your spending habits and follow a well-planned budget so you don’t face the same problems later on. Consolidation does not eliminate debt, so make sure your spending is in check before you proceed, or you may not be able to achieve the debt relief you require.
To learn more about using a Discover Home Equity Loan for debt consolidation, contact your Personal Banker at 1-855-361-3435.