If you have a huge credit card debt bill on
which you are paying high interest rates, you should consider
using the equity built up in your home to finance a debt consolidation
loan. This type of a loan is called a home equity loan.
equity loan has the following characteristics:
- A home equity loan draws on the equity built
in your home as collateral. This means incase you fail to make
your monthly payments, the bank can possess your home (collateral).
- A home equity loan (if used correctly) could
lower your debt without affecting your credit rating.
- A home equity loan is also known as
a secured home equity loan.
Consider the following tips if you want to take
out a home equity loan:
1) Be aware that your home could be foreclosed
if you cannot afford to keep up with the monthly payments towards
the home equity loan. If you have even one small doubt towards
keeping up with the monthly payments, then do NOT take out the
home equity loan. Do not rely on that employer advance or job
promotion to help you pay off your home equity loan. There is
no guarantee that you will get the job promotion!
2) If you take out a debt consolidation loan,
you do NOT qualify for bankruptcy protection in extreme financial
emergencies such as loss of spouse, loss of job, disability, etc.
This is because by taking out a debt consolidation loan, you are
turning all of your unsecured debt towards secured debt (your
home is the secured collateral). However, if you had kept all
your debt on your credit card and NOT taken out a debt consolidation
loan, then you would still qualify for bankruptcy protection if
you need it.
3) Most consumers who take out debt consolidation
loans go on a shopping spree right after. This is because they
feel they have more disposable income freed up every month and
have more money to spend towards unnecessary lavish luxuries.
This ends up in the consumer being able to only make the minimum
monthly payments and carry a high debt balance. The root of the
debt which is the consumer's spending habits have NOT changed.
Its only that money has been freed up for a short period of time,
only to accumulate more debt.
4) If you have problems budgeting your monthly
expenses or overspending your money, you should consider a debt
settlement consolidation program, which forces you to change your
spending habits and NOT just put all of your shopping into your