When it comes to debt consolidation, I’ve found that in general, people understand what it is: a realignment of debts, usually consolidating them into one loan payment for easier financial management. But many don’t realize what all of their consolidation options are.
Because each person’s financial situation is unique, so are the consolidation plans that we present to them. So let’s dive in and highlight the options that may be available to you when it comes to consolidating your debt.
Option 1: Mortgage Refinance
I recently met with members who were maxed out on their credit cards, making minimum payments each month. They were struggling with multiple payments and being strapped for cash and were looking for a better way to manage their finances. After a careful analysis of their overall financial picture, we discovered that as homeowners, they qualified for our 10-year mortgage product. Because they had enough equity in their home, we were able to finance 100% of their home’s value and pay off their credit cards simultaneously. Overall, they were saving $700/month in payments.
There are options using primary mortgage financing where lenders offer up to 80%, even 85% of the home’s value. Some lenders, including ECCU, also have hybrid products that go up to 100% of the home’s value, such as our 7, 10, 15, and 30-year mortgage products.
It’s important to keep in mind that a short-term mortgage can provide long-term savings. In the scenario above, the members were able to save substantially because the interest rate on their mortgage was significantly less than their credit cards. So not only are they saving money each month, they are also paying less interest in the long run, which is a win-win.
Bottom line: Consider a mortgage refinance for debt consolidation if you find yourself struggling to make multiple monthly payments and have enough equity in your home to work with.
Option #2: Home Equity Line of Credit
A common misconception about home equity lines of credit (HELOC) is that they can only be used for home repairs, remodeling, or other home-related costs, but that is not the case. There are no restrictions on how you spend your HELOC funds.
One of the benefits of being a homeowner is the ability to tap into the power of your home’s equity to establish a revolving line of credit. A HELOC allows you to take advances as often (or as little) as you need, with interest accruing only on the funds that are drawn.
While an ECCU HELOC is a variable rate product, which many people fear, it’s important to note that the rate has not risen in several years. In fact, the rate dropped in 2014 and remains the same today.
Bottom line: Consider a HELOC if you’re a homeowner with equity in your home and like the idea of having access to a revolving line of credit whenever you need the funds.
Option #3: Personal Loan
A personal loan is a popular way for non-homeowners or those who don’t have enough equity in their home to consolidate their debt. Typically, interest rates are higher than a HELOC or mortgage refinance option, so you’ll want to research to find the best rate and repayment term that makes the most sense for your financial situation. A good place to start is ECCU’s loan rates page.
Bottom line: Consider a personal loan if you’re looking for a shorter term fixed-rate consolidation option.
Option #4: Certificate of Deposit Secured Loan
If you have a certificate of deposit (CD), you can borrow up to 100% of its amount at a rate that’s just 2% above your CD rate. You’ll continue to earn dividends and aren’t restricted on how to spend your funds. It’s a little-known option that can help whether you’re looking to consolidate or even just need to borrow money in a pinch.
Bottom line: Consider a CD Secured Loan if you have the available funds from your certificate(s) of deposit and you’re looking for a low-rate consolidation option.
Contact us for a free analysis.
By properly aligning or restructuring your debt, you can often reduce monthly payments and ease cash flow. Any debt reduction strategy requires a structured plan and a commitment to following a budget, and while it may not be right for everyone, it’s never a bad idea to discuss your situation with a trained professional.
If you feel overwhelmed by your monthly payments, contact your financial institution for assistance right away. Lenders are trained to discuss a variety of options that can offer assistance. During a credit analysis with ECCU, we’ll review credit, income, debt-to-income ratio, length of employment, and length of residence. Then we’ll narrow down the possibilities that fit your budget, and if appropriate, formulate a plan to restructure the debt. Never wait until it is too late!
Contact ECCU today or call me personally at 269.544.3143 for a free analysis. I’m here to help!