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Consolidation Line of Credit

A consolidation line of credit is a finance tool that uses equity in a home or other piece of real estate to consolidate debts.

This line of credit uses money borrowed against real estate equity to pay off credit card and other debts. It doesn’t get rid of the debt instead it simply shifts it from one lender to another.

Even though a consolidation line of credit doesn’t get rid of debt it can substantially reduce the costs of debt. By replacing high interest debts such as credit card balances with a lower interest equity line of credit a borrower can save hundreds or thousands of dollars a year.

How a Consolidation Line of Credit Works

A consolidation line of credit provides some serious advantages over a debt consolidation loan. A line of credit is an agreement between a lender and a borrower that gives the borrower a set amount of credit to use.

Most of these lines of credit are secured by equity in real estate or a home that the borrower owns. The equity is determined by the difference between the value of the property and the amount it is mortgaged for.

This money is then used to pay off existing debts. The borrower will then have to pay off the line of credit instead of the earlier debts.

Advantages to a Consolidation Line of Credit

The biggest advantage to a line of credit is that a borrower will be able to use it as long as credit is available. This means that a borrower could go back and get additional funds to consolidate future debts.

Another advantage is that the borrower will only have to use the credit they need. A borrower won’t have to pay off an entire loan only what they have paid in. A borrower can use this to limit how much they have to pay.

Another benefit from debt consolidation is that it can improve a person’s credit rating. When the debts are paid off that fact will be reported to credit bureaus. The credit bureaus might raise a person’s credit rating when they receive this information.

How to Get a Consolidation Line of Credit

To get a consolidation line of credit most people will have to own a piece of real estate in which they have equity. Those who don’t have such a piece of real estate might be able to get such a line of credit from an online lender.

The amount of the line of credit will usually be determined by the amount of equity in the real estate. Generally lenders will give a person a line of credit equal to a percentage of the equity usually about 80%.

Those with bad or poor credit ratings will have to pay a higher interest rate on a consolidation line of credit. By going online and shopping around an individual should be able to get a better deal on a consolidation line of credit.