A debt consolidation loan can be outstanding if you avoid the disadvantages. It lets you pay off many debts simultaneously, leaving you with just one monthly loan payment. If you use a home equity loan to consolidate those debts, your interest rate will also be lower. Depending on the loan length, you could save time and money.

Unsecured loan options are the offers you usually get in the mail from various finance companies. They usually advertise a low rate, which shoots up to a rate that’s even higher than most of your current debt rates if you’re ever late on a payment. Avoid this type of consolidation loan if possible.

For this reason, our discussion will be limited to the secured options, like home equity loans.

Advantages

1. A single payment is certainly more straightforward and more convenient. You can easily arrange to have the funds deducted from your bank account each month. This can be a real advantage if you need help to stay organized.
2. A lower interest rate. If the loan is used to pay credit card debt, the interest rate can be much lower. Since your home secures a home equity loan, the interest rate is about the best you’ll ever find.
3. Lower payments. The lower interest rates and the typically more extended loan period will result in lower payments. For your best long-term savings, though, set up the loan payback period as soon as possible.
4. There is only one creditor. If you ever need help with payment, you no longer have to call many different creditors to try straightening things out.
5. Taxes. In most cases, your home equity interest is tax deductible. Do your research to see if this tax break applies to your situation. This is much better than paying interest on your credit cards.

Disadvantages

• The potential for more outstanding debt. It can be hard to avoid the temptation to start charging items to your credit cards once the balances are paid off with the consolidation loan. As you can imagine, this can be a severe challenge as your balances climb again. Don’t make your situation even worse.
• The length of the loan. This is manageable, but people frequently take out loans ranging from 10 to 25 years long. This dramatically increases the total amount you’ll pay in interest. Only get a loan for a longer period than you need; you can negate many of the loan’s advantages.

1. Your house is at risk. Do you know what happens when you don’t pay your credit cards? You get a lot of phone calls and nasty mail, and there is a very slight chance you’ll be sued a few years later.

• What happens when you don’t pay on your home equity loan? They come after your house. You got that great interest rate because your house was collateral for the loan. Your house is at risk if you don’t meet your loan obligations.

Home equity debt consolidation loans can be fantastic if you have the self-discipline to:

• Borrow only what you need.
• Avoid incurring more debt.
• Keep the payment period short.
• Make your payments on time.

If you can do all these things, a debt consolidation loan can save you a lot of money and grief in paying off your debts. As with any financial service, look for the best rates before taking the plunge.