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They use collateral, such as home equity used to secure a home equity loan, and generally have better interest rates than unsecured ones.
If you have the collateral and can meet the requirements, a secured loan may save you money on interest as you pay down your debt.
Debt consolidation loans are used to pay off and simplify existing debt by consolidating multiple payments and accounts into a single account with one lender and payment. Depending on your creditworthiness, you may be able to receive a lower interest rate on a debt consolidation loan than you are currently paying on your debt, saving you money on monthly payments and overall interest.
However, home equity loans for debt consolidation can be risky, as your home may be foreclosed on if you can’t pay your loan.
“The danger is if you eat up a significant part of your home equity,” says Gerri Detweiler, education director of business credit website
Home equity debt consolidation loans, a type of secured debt consolidation loan, offer a fixed interest rate.
Interest paid on a home equity loan is usually tax deductible, while credit card interest is not.
However, if you have multiple hard inquiries within a 45-day period, it’s considered rate shopping and will only count as a single credit inquiry. It’s best to stick with trusted, well-established lenders such as the ones recommended on our list.