Guide to Debt Consolidation Loans vs. Personal Loans: Key Differences to Know
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What is Debt Consolidation?
What Is a Personal Loan?
How Personal Loans Work
What Is a Debt Consolidation Loan?
How Do Debt Consolidation Loans Work?
Debt Consolidation vs. Personal Loans
Pros and Cons of Debt Consolidation Loans
Pros and Cons of Personal Loans
Alternative Forms of Debt Refinancing
Balance transfer credit cards: You may be able to get a credit card that offers a 0% annual percentage rate (APR) for up to 21 months, which could be useful for consolidating smaller debt. If you are able to pay the new card off within the introductory period, you would not have to pay any interest on that debt. If you don’t pay the full balance off during that time, however, you could potentially end up with a higher rate than you are currently paying. Home equity line of credit (HELOC): If you’re a homeowner and have equity in your home, you might be able to use a HELOC to consolidate your debt. Because a HELOC is secured by your home, you might get a lower rate compared to a personal loan or debt consolidation loan. However, there is risk involved – you could lose your home if you end up not being able to make the payments. 401(k) loans: You may be able to take a loan from your employer-sponsored retirement account to pay off your debt. This may give you access to lower interest rates, and you will pay the interest to yourself. However, not all 401(k) plans allow loans, and if you don’t repay the loan on time, you can get hit with taxes and high fees.
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