Debt consolidation - How to consolidate debt using a home equity loan

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Overcoming the stigma of being in dept, grow in self-confidence and regaining ones own centre and balance again, is easy in the new energies. This is all about being true to yourself, what we have been doing in the past is buying into other peoples beliefs and concepts.

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Debt consolidation services - A primer
When someone is extremely deep in debt, and he or she has no other options to prevent bankruptcy, debt consolidation can be his or her savior. Debt consolidation can also be a very wise choice for someone who has many debts on high interest credit cards. Debt consolidation, quite simply, is the process of taking loans and debts and bringing them into one low-interest loan that can be paid off over... Read debt consolidation 1 article



Debt consolidation - How to consolidate debt using a home equity loan
If you are thinking about using the equity in your home to consolidate your loans and take control of your debt, then you have a few different options available, with considerable different and terms and conditions. Before committing to a certain path, do some research and educate yourself on the differences between a Home Mortgage, a Home Equity Loan, an Equity Line, and Home Refinancing.

Obtain a first mortgage on your home

If you haven't already, obtaining a first mortgage on your home is usually the first step, and the best choice overall.

Obtain a loan on the equity in your home

A Home Equity Loan, also called a second mortgage, doesn't require you to refinance your entire home loan. The rates and costs of Home Equity Loans are usually more attractive than most credit cards or other unsecured lines of credit and the amount available is usually up to 85% of the value of your home. Obtaining a second mortgage is very similar to a first mortgage process.

Home Equity secures an Equity Line

Instead of drawing one lump sum amount with a Home Equity Loan, an Equity Line allows you to write checks and borrow against your equity for smaller amounts, over an extended period of time, and usually at lower rates than an unsecured credit line. In essence, your home becomes the security for your new credit line, but be careful, although this may feel like a wonderfully large credit card, if you are unable to pay your home is in jeopardy.

Refinancing your home

Refinancing your home usually provides a lower interest rate than a second mortgage or Home Equity Loan, and the mortgage term can be longer, resulting in lower monthly payments. However, it can be more costly to refinance a home than to obtain a second mortgage. Check to make sure that interest rates are low enough to make refinancing the best choice and remember that a lower interest rate means less to deduct on your taxes and in the end can increase your tax payments, which decreases your overall savings.

To view our recommended debt companies companies online, visit this page: Recommended Home Equity Debt Consolidation Companies.

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debt consolidation loan - Do to dodge the bullet

If you are in financial difficulties due to debt or have built up a variety of debts over time, a debt consolidation loan may be for you. But before you take that route, you should consider all the options.

However you got into debt - unexpected financial difficulties, illness, loss of providing member of the family or overspending - you can turn to several organizations and charities for advice. These include the Citizen's Advice Bureaux, the Consumer Credit Counselling service, the Community Legal Service (England and Wales) or call the National Debtline on 0808 808 4000. Remember debt consolidation is one option and you should not feel pressured into taking it. These organizations can help you consider the alternatives.

Your own lenders can also be surprisingly sympathetic about restructuring repayments. Talk to them as well.

Having said that, many borrowers can benefit from consolidating their debts on better interest rate terms. Some credit cards cost up to 17.9 % (e.g. MBNA) and store cards can cost more. Consolidating your debt could cut interest payments by up to two thirds.

It may be more convenient to make one payment rather than several. Or you can improve your cash flow in the short term by reducing monthly outgoings. But this may cost you more over time because you are paying the debt off over a longer period of time.

Be careful if you are borrowing larger sums of money (over ? 25000) as your loan is likely to be secured as a second mortgage rather than an unsecured personal loan. Many adverts make it sound like debt consolidation will solve your financial problems. But taking out a secured loan means you are gambling your house that you can repay the debts. You need to be sure of your ability to repay before doing this.

Most people simply want to consolidate unsecured personal debts, overdrafts or credit cards. Taking out a second mortgage to do this could mean you lose your home if you fail to pay the debt even though you keep up the payments on your first mortgage. You should also consider insuring this kind of loan, although not necessarily with the lending company. You may find a cheaper policy elsewhere.

Make sure you deal with the causes of your debt as well as restructuring your credit. There is little point in taking out a debt consolidation loan if you continue to live beyond your means. If you don't exercise financial discipline you run the risk of getting into the same trouble again in two or three years time.

Before taking out a loan, think about how much you can afford to repay per month. You need to know -

- what the APR is
- whether it is variable
- what the overall cost of the loan is
- if the rate of repayment can change for other reasons
- what happens if you miss a payment
- what happens if you repay early or refinance
- if you have secured the loan on your home, what are the consequences of defaulting
- what happens if you decide to move house Things to be wary of are -

- firms which specialize in debt consolidation; they generally cost more in interest and fees
- claims to improve credit records; only you can do this and it takes time
- offers to lend extra money, for example, to buy a car; extra debt puts your home at further risk
Finally, shop around for the best credit and payment protection deals. You do not have to get them from the same company and you may not get the best deal if you do. To view a selection of both debt consolidation loans and low rate personal loans, sites like creditmarket.co.uk cater for the UK market.

Tim Day - Writing for creditmarket.co.uk a UK resource for loans and other personal and business finance information.




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