One popular way of managing debt is a technique known as ‘reloading’ which is where the individual takes out a different type of loan to clear their debt. The aim is to lower the amount of interest the person has to pay with their current provider. A debt consolidation loan remains one of the most popular ways people consolidate their debt. However, other types are available, like HELOCs, personal loans and lines of credit.

What You Need to Know About Reloading

It’s common for some people to have two or three credit cards, some of which might be nearly ‘maxed out’. If this in itself wasn’t bad enough, they probably have astronomical interest rates of between 19% and 21%. So, despite making regular monthly payments, the person holding the debt might struggle to pay it off. If this sounds similar to you, you might want to consider reloading. This works by a borrower taking out a ‘consolidation loan’ which is enough to clear the existing balance, and the debt owner simply pays back one easy monthly payment. Because the interest rate is low, its easier for the borrower to pay the loan back, and the debt owner pays less interest as well.

Consolidating Your Debt with Reloading

There are two main ways people usually consolidate their debt: secured or unsecured debt. As you can expect, there are advantages and disadvantages to both.

With secured debt, an asset is pledged to the debt company. So, if payments aren’t kept up to date, they can legally take possession in order to recover the costs. Because this type of strategy presents less risk to the lender, interest is lower.

If you think a secured loan could be the best way to consolidate your debt, you have a couple of options. You could borrow against your home’s equity with a home equity line of credit. Or, use your property or even vehicle for a secure personal loan.

If you don’t want to risk losing your property and are willing to pay a bit more interest, unsecured debt would be a better choice. As already mentioned, a consolidation loan is taken out, or a balance transfer of credit cards takes place, some with 0% interest payable over a set period. If you want to know more, explains it here.

Reloading: A Working Example of Debt Consolidation

Say someone has three credit cards with $20k debt spread over all three and they were paying an interest rate of 21.99%, this would take around 30 years to clear, as long as minimum monthly payments were being made.

A consolidation loan, in comparison, is better because interest is likely to be much lower, at around 12%. Meaning long term, lots of money is saved!

Three of the Best Debt Consolidation Loan Companies

If you already have a favourable credit score, Discover is a good choice. Expect to pay as low an APR as 6.99% up to the value of $35,000.

If you’re unfortunate enough to have a poor credit score or are a low earner, Avant would be ideal. However, you will have to pay higher interest rates.

Finally, if you have high levels of debt up to the value of $40,000 and seek a competitive interest rate and a low origination fee, you can’t go wrong with choosing SoFi.