These often equate to 2% to 5% of the loan amount, paid out of pocket or rolled into the loan. Additionally, the closing costs for a home equity loan can be hundreds or thousands of dollars – including home appraisal fees, attorney fees, title search fees and other costs. However, the risk is also greater - if you default on the loan, you could lose your home to foreclosure. Generally, a home equity loan offers a much lower interest rate than a credit card or unsecured personal loan. Home equity loans often require regular monthly payments at a fixed interest rate. The money from this loan can then be used to pay off all your other debts. With this type of loan, you borrow against the equity in your home, putting your house up as collateral. Home equity loans can also act as a debt consolidator. If you make a new purchase with the card (even during the promotional period), you may have to start paying the standard interest rate on your entire balance: new purchases and the transferred balance included. Additionally, there may be balance transfer fees, and the promotional rate doesn’t apply to new purchases. After that, you may have to pay a much higher interest rate. However, the promotional rate usually only lasts for a limited time. Many cards offer low- or zero-interest promotional rates on balance transfers. One option is to use a balance transfer to move debt from several credit cards into one. You can consolidate multiple debts into a single payment in several different ways. Your monthly payment would be just $546.07, and you’d be out of debt more than two years quicker – and pay a total of $32,764.43. Now say you could qualify for a five-year, $24,000 personal loan with a 13% APR to consolidate those credit cards. That $24,000 balance would require $55,611.59 in payments. Your monthly payments on those credit cards would come out to $630 per month, and you wouldn’t pay them off for 89 months. APR is a measure of the true cost of a loan, including the interest rate and fees. That way you pay less in interest over the life of the loan.įor example, say you have three credit card accounts with the following balances and annual percentage rates (APRs). To save money in the long run, borrowers would ideally find a debt consolidation loan with a lower interest rate than the average of their existing debts.

Most debt consolidation loans have a fixed interest rate, which means a borrower’s monthly payments are always the same. The strategy can help to both simplify their monthly finances and make it easier to understand how debt repayment fits into their budget. The basic idea behind debt consolidation is that a borrower can combine multiple debts into one payment.

Debt consolidation loan calculator