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Debt consolidation loan interest payments are most often tax deductible when home equity is involved.

This amounts to a total savings of $7,371.52 ($3,750 for payments and $3,621.52 in interest).

Of course, borrowers must have the income and credit worthiness necessary to allow a new lender to offer them at a lower rate.

These loans are usually offered by financial institutions, such as banks and credit unions; there are also specialized debt-consolidation service companies.

There are two broad types of debt consolidation loans: secured and unsecured.

“If the principal is paid down faster [than it would have been without the loan], the balance is paid off sooner, which helps to boost your credit score,” says Freeman.