Debt consolidating consolidate
Theoretically, debt consolidation is any use of one form of financing to pay off other debts.However, there are specific instruments called debt consolidation loans, offered by creditors as part of a payment plan to borrowers who have difficulty in managing the number or size of their outstanding debts.One method is to consolidate all their credit card payments into one, new credit card—which can be a good idea if the card charges little or no interest for a period.They may also utilize an existing credit card's balance transfer feature (especially if it offers a special promotion on the transaction).These organizations do not make actual loans; instead, they try to renegotiate the borrower’s current debts with creditors. The Internal Revenue Service (IRS) does not allow you to deduct interest on any unsecured debt consolidation loans.If your consolidation loan is secured with an asset, however, you may qualify for a tax deduction.Even if the monthly payment stays the same, you can still come out ahead by streamlining your loans.
Of course, borrowers must have the income and creditworthiness necessary to qualify with a new lender, which can offer them at a lower rate.
Home equity loans or home equity lines of credit (HELOC) are another form of consolidation sought by some people.
Usually, the interest for this type of loan is deductible for taxpayers who itemize their deductions.
Debt consolidation loan interest payments are often tax-deductible when home equity is involved.
A consolidation loan may also be kind to your credit score down the road.