The Truth About Low-Interest Consolidation Loans

Man with options | Alternatives to Bankruptcy
  • Review your options for consolidating your debt.
  • Unsecured consolidation loans are hard to get in today's market.
  • Consider using your home equity to consolidate debt.

Learn the Four Types of Low-Interest Consolidation Loans

Credit card debt can pile up. For some of us, it can quickly reach an unmanageable point. If the amount you charge on your cards is more than you are paying, your balances can become enormous before you know it. If your cards have high interest, it can be hard to dig yourself of out the hole, unless you make an aggressive plan and stick to it.

Searching for Low-Interest Bill Consolidation Loan Rates

One way to work the problem is to to find a way to keep your interest rates low, in order to keep your monthly payments low. Unfortunately, if your debt level keeps rising or if you miss a single payment, it will be very hard to find a low interest bill consolidation loan.

Debt Consolidation Loans

One solution to managing out-of-control credit cards and other debts is through low-interest bill consolidation loans. If you qualify, you can use a low-interest bill consolidation loan to pay off high interest credit cards or other loans. Depending on how much debt you have and the size of the debt consolidation loan you qualify for, you may need only one loan to consolidate all your debt.

However, a low interest debt consolidation loan can only do so much. It doesn't reduce your debt. It merely resets your interest rate so you can start pay it off faster. To get out of debt, you need to establish a plan of attack. Before you consolidate your debt in a bill consolidation loan you need to:

  • Make a budget, so you can control your cash flow and avoid running up more debt
  • Pay your monthly bill consolidation loan payments in full and on time
  • Limit excess spending

Four Types of Low-Interest Bill Consolidation Loans

1. Secured Consolidation Loan

A secured bill consolidation loan is one where you provide collateral for the loan. Collateral is anything the lender can redeem if you default on your payments, such as a home, vehicle, or in the case of a business, inventory or equipment.

With collateral, you are more likely to get low interest bill consolidation loans because you are putting up something the lender can repossess, in case you do get behind on your payments.

2. Unsecured Consolidation Loan

An unsecured bill consolidation loan is one where you provide no collateral. This often results in a higher interest rate. Also, with an unsecured loan, lenders tend to limit the size of the loan, to limit their risk. Unsecured loans are difficult to obtain in today's market, requiring strong income and credit. If you can find an unsecured loan with a lower rate than your current debts, it can be an effective way to improve your financial situation. Be sure to shop around to find the best loan available.

One unsecured loan option to consider, if your credit is good, is a balance transfer offer. Balance transfers come with a low “teaser” rate that expires. Make sure you know when your rate adjusts and how high it can go and never miss a payment on a card you have used to transfer balances to, or you will find all your debt on the card at a penalty interest rate in the range of 29.99%.

3. Home Refinance Loan

If you own a home, consider a refinance loan to get a lower interest rate mortgage AND pay off existing debt. Depending on how much you owe, this might increase your mortgage payments, instead of lowering them like refinancing typically does, but can lower your overall monthly debt payments. Adding to your mortgage balance puts your home at greater risk. If you don't make your new, higher payment, you risk foreclosure. Also, home values dropped so much, in the past few years, that fewer borrowers have enough equity to do a cash-out refinance loan.

4. Home Equity Line of Credit (HELOC)

If you are a homeowner with some equity in your property, a home equity line of credit (HELOC) might be the right solution to consolidate your bills. However this can also put your home in danger. In order to figure out if a HELOC is a good way to consolidate debt, start by figuring out how much equity you have in your home. Subtract your remaining mortgage balance from the current market value of your home. Keep in mind that the maximum combined loan-to-value (CLTV) for your first and second mortgages is 80-85%, in most markets.

If you look for low-interest bill consolidation loans, weigh all your options carefully. Learn about each option and then figure out which works best for you.

Rate this article
Not helpful

Comments (10)

Lyle H.
Braham, MN  |  October 20, 2011
We have $10,000 (with a rate of 4.5% until paid off) in credit card debt and We owe $12,000 (with a rate of 7.8%) on my car. We have great credit (over 800) is it worth it to try to consolidate these bills into one? With the housing market the way it is we owe more on the house than it is worth, so we can not get a home equity loan or refinance it. We sometimes get a little short on cash. Where is the best place to get a loan if you think it would be better to consolidate?
November 10, 2011
As you have excellent credit, I recommend looking for low interest or 0% interest balance transfer offers. The 4.5% is a pretty low rate, so only transfer a balance as large as $10,000 to a 0% if you are confident that you can pay off the debt within the time that the low-interest rate stays in effect. If the rate rises significantly after the teaser period, you could be better off staying put at the fixed-rate 4.5% you have.

You can look into refinancing your car loan. Credit unions often have excellent rates for auto loans, so start your shopping there.

Lastly, look into a HARP refinance for your mortgage. You won't be able to take cash out, but you could lower your monthly payment and improve you cash flow, easing the strain to pay your other bills.
Charles F.
Hoffman Estates, IL  |  April 29, 2011
I have about 40,000 in credit card debt due to unemployment over the past year. I am employed now, but banks are unwilling to offer any consolidation loans, even a home equity. I always pay my bills, I just want to consolidate 4 credit cards. I don't know how to bring down essentially old debt if I can't get a consolidation loan
April 29, 2011
There is no one-size-fits-all answer to your question. See the resource What are my debt resolution options? to understand the different approaches to solving a debt problem that is causing distress.
Sajila W.
Schenectady, NY  |  February 21, 2011
Hi Such a Nice Post.
Joyce M.
Dunn, NC  |  May 25, 2011
I need to know how to get my bills consolidated.
May 25, 2011
I have two suggestions for you:
  1. Enter your data into the Debt Coach for a personalized, interactive review of your debt resolution options. This will help you choose the debt resolution strategy that is right for your unique circumstances and goals.
  2. Complete the Savings Center form to receive a no-cost, no-gimmick quote from a pre-screened debt resolution provider.

Let us know how you decide to resolve your debt issue.

Nick K.
November 20, 2010
Is a bill consolidation loan preferred over a low interest balance transfer offer?
Santa Barbara, CA  |  November 20, 2010
Low interest loans are preferred because low interest balance transfers often are only introductory rates for short periods of time. Also if a payment is late/missed on an introductory rate often the interest rate will balloon to a much higher rate.
Fredric T.
Chickamauga, GA  |  September 24, 2011
If the loan is up side down to the housing drop then who do you think is going to give you a chance , which is not your fault.
Waiting for comments to load Loading more comments
Thanks for your feedback!

Tool Box   Easy to use resources to help you find solutions to your money questions