A consolidation loan should only be considered if the interest rate is less than all the credit you owe AND you close out all of the accounts you paid off.
Consolidation loans are DANGEROUS for impulsive people because all you are really doing is shifting all your debt from one place to another, effectively OPENING ANOTHER CHANNEL OF CREDIT, while freeing up your credit cards.
You pay more interest when your payments are stretched out to 60 months.
Your debts consist of: gas card with a balance of .$400 at 18%Master Card balance of...$6,000 at 14%VISA balance of............... Your local bank charges 12% interest for home equity loans and has an $800 loan origination fee.
Sometimes the interest rate can be higher than the total APR on your current debt.
Some unscrupulous lenders charge an enormous up front fee that they don't go out of their way to tell you about.
Make sure your bank allows pre-payment and extra principal payments.
What if you Don't Have Enough Equity to Consolidate all Debts But supposing you only have ,500 equity in your house. You can't, you'll have to choose which accounts to payoff.
The department store and gas card have the highest APR, so shoot for those. There is no reason to borrow more, and you should not either.
Sure you would like to buy down some of the interest with your equity, but if you don't have enough to pay it off and close the account, then there is a very high risk that you'll just run the balance back up again.
Some accounts you can close, then just continue to pay them off, then you're OK using the remainder of your equity balance to buy down whatever you can on the balance.
But we cannot stress the importance enough that you must not let your balances go back up. THIS SHOULD BE CLEARLY SPELLED OUT IN THE CONTRACT. If you don't know how to check their math and verify the monthly payments, don't sign the loan papers, you have no business taking out a loan.
Consolidation just means that the monthly payments from your creditors will be consolidated into one payment to one lender.