Debt Consolidation And Home Equity Loans

Though it sounds illogical to spend more than you make, circumstances beyond our control always surround us. Leaking pipes and medical bills, expensive nights and high-energy thrills drown us deeper into debt, and have us swiping our credit cards as though it were a reflex. National surveys report that those in the red are not alone, as the average household is about $8,000 dollars in credit card debt. With the outstanding balances that only rise, increasing interest rates and other miscellaneous fees, solvency becomes a mere streak of sunlight in an ocean of darkness, a realm of red ink, debt, and fish. As bankruptcy looms around the corner, debtors are compelled to give up everything they own, shed their excessive lifestyles and create a budget. But before going outright belly up, it is important to explore the other options for getting rid of debts.

Debt Consolidation Loans

If you would like to take all of your debts and lump them into one monthly loan that you can pay off over many years, consider a debt consolidation loan. Instead of paying high interest rates with credit cards, secure a lower fixed interest rate with a debt consolidation loan in order to pay down the balances to the credit card companies.

To apply for a debt consolidation loan, consider some form of collateral for securing the transaction. If debtors have accrued student loans, they can apply for a Stafford consolidation loan, a federal program that operates with 4-8% interest rates. Having good credit alone might be enough to qualify for a loan, but lenders seek all tangible assets before handing them out. Homeowners use their property in the form of home equity loans, also known as second mortgages. 

Home Equity Loans

A home equity loan is a five to seven year plan to off credit card debts. The  maximum amount you can borrow is normally 80-100% of the value of your house ( depending on your credit and the state in which you register.) With a lower interest rate and fixed terms, home equity loans provide an accessible means of paying off debt.

If your house were worth $20,000, you could expect a $16,000-$20,000 loan. With this money, you may choose to pay off your credit card debts, fund that new addition to your house or start a child's college fund. The money is yours to spend on whatever you desire, and once the credit card bills are payed, the wise investor saves some and invests the rest for greater returns in the future.

The Bottom Line

If you don't pay the monthly fee for your home equity loan, you will lose your house. Before signing a debt consolidation loan, remember the bottom line:  this is your second chance, and a failure to pay the new loan will result in foreclosure. While debt consolidation for some is a means of financing unforeseen circumstances, for others it serves as wake up call to cut down the spending and start living by their means.