Grace Enfield, Content Writer
The types of loans that can be used for debt consolidation are unsecured personal loans, secured personal loans and home equity loans. You can also use other methods to consolidate debt, such as a balance transfer credit card or a home equity line of credit.
Types of Loans Used to Consolidate Debt
Unsecured personal loans
An unsecured personal loan is the best way to consolidate debt because you do not have to put anything up as collateral. The lender will base their decision on a number of factors, like your credit score, income, employment status and existing debt. You'll typically need a credit score between 580 and 700 to qualify.
Secured personal loans
A secured personal loan requires you to provide collateral to the lender, such as money in a bank account. If you can't pay back the loan, the lender can keep the collateral. These loans are very easy to get and are available to people with bad credit.
Home equity loans
You can use a home equity loan to consolidate debt. The amount you can borrow depends on your equity in the home - the difference between the value of the home and what's left of the mortgage. The home will also serve as collateral for the loan.
Other Ways to Consolidate Debt
- Home equity lines of credit: Home equity lines of credit function like a credit card in that you can borrow money at will up to a certain limit. The amount you can borrow will depend on your home's equity, and your home will serve as collateral.
- Balance transfer credit card: Balance transfer credit cards allow you to move your loan balance to a credit card. Some balance transfer credit cards offer 0% APR introductory periods, which allow you to pay off your loan interest-free for a set amount of time.
- Loans from friends or family: Friends or family members may be willing to lend you money to pay off your existing debts. They may have more flexible terms than major lenders.
Ultimately, the best type of loan for consolidating your debt will be the one that saves you the most money and gets you out of debt the fastest. If you're interested in a personal loan to consolidate debt, check out the free pre-qualification tool on WalletHub.
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