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When debt accumulates, debt consolidation is the first solution suggested. It tends to solve debt problems while at the same time leaving the door open for future financing. Your credit score remains intact or increases and you get to lift a weight from your shoulders. However, the benefits and drawbacks of home equity debt consolidation should be pondered before deciding.
There are different types of debt: motor vehicle loans, signature loans, personal loans, bad credit loans, credit card debt, unsecured loans, payday loans, mortgage loans, home equity loans, etc. Not all debt should be treated equally and not all debt is suitable for being consolidated through a debt consolidation loan.
Credit Card Debt, Personal Loans and Default
More and more people each year, default on their personal loan and credit card balance payments. Missing payments or paying late shows as a stain on your credit history but defaulting will ruin your credit and put you a few steps away from bankruptcy. After a bankruptcy, recovering your credit won’t be an easy task and it may take you years to get back on your feet.
In order to avoid stains on your credit history, in order to avoid defaulting or having to go through a bankruptcy process. You can consolidate your debt while you are in time to do so. Resorting to a home equity debt consolidation loan is the smartest thing to do. These loans provide a cheap way to eliminating debt and making your monthly payments more affordable.
Pros And Cons Of Home Equity Debt Consolidation Loans
All Home Equity loans require that you own a property and home equity debt consolidation loans are not the exception. Only homeowners can consolidate by obtaining a home equity debt consolidation loan. These loans use the remaining equity on your home (the difference between your home value and your mortgage debt) to guarantee another loan.
Since these loans are guaranteed, the interest rate charged for them is extremely low and thus, the consequent monthly payments are also low. If you add that you can get longer repayment programs than with almost any other kind of loan, you obtain lower monthly payments that are easily affordable by any budget.
You can obtain high loan amounts in order to cover for all your debts but you’ll never be able to obtain more money than the remaining equity on your home. Moreover, your home mortgage and home equity debt consolidation loan combined can only add up to 85% of your home value or else you won’t get approved for the loan you seek.
Moreover, the interests generated by this kind of loans are tax deductible and thus you can save thousands of dollars on taxes over the whole life of the loan. This is definitely another advantage when comparing a home equity debt consolidation loan with your outstanding loans and credit card debt.
Sadly, by requesting a home equity debt consolidation loan you are jeopardizing your property if you ever fail to meet the monthly payments on the new loan. This is due to the fact that the loan is secured on your home and the lender can always resort to the legal action of repossession on your property in order to claim his money and force repayment of the loan.
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