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Debt Consolidation
This article provides some useful advice
to consider prior to taking out a home equity debt consolidation
loan. It also compares debt consolidation to debt settlement.
If you have equity in your home and you’re overextended
with credit card debt with high interest rates, then
it would be foolish for you not to consider taking out
a home equity loan. After all, it’s probably the
only sensible financial product out there that can lower
your debt without affecting your credit. In general,
if it is available to you, then you may want to use
a home equity loan to ease your debt burden before anything
else, including debt settlement consolidation. Like
most things, however, there are downsides to getting
a home equity loan or refinancing your mortgage that
must be considered before choosing a solution that’s
appropriate to your individual situation.
1. Bear in mind the possibility of foreclosure. If
it’s even a question whether you’ll be able
to afford the monthly payment on your debt consolidation
loan, then avoid it at all costs. By securing the loan
with your property, you could be risking your home when
wide array of options are already available to you.
On a related note, if your basis for being able to afford
the monthly payment rests on things like, “Once
I close that big deal at work next month” or “I
should get my promotion by then”, then you should
definitely reconsider. When it comes to debt, remember
Murphy’s Law: “Anything that can go wrong,
will go wrong.”
2. With a debt consolidation loan you’re impacting
your ability to discharge the debt in a bankruptcy.
That is, if something comes up down the road and your
income is suddenly reduced, filing bankruptcy won’t
even help since you converted all your unsecured debt
into secured debt. On the other hand, if you had just
kept the debt on your credit cards and your income was
suddenly reduced, you’d still have bankruptcy
as a possible alternative for eliminating the debt and
thus been able to protect your home. This situation
would matter if you could afford the payment on your
first mortgage, but you had a home equity loan payment
that pushed you over the edge. More specifically, this
applies to consumers from states like Texas, Massachusetts,
Florida, Oklahoma, Iowa, and Arkansas because they offer
large homestead exemptions for bankruptcy filers. This
doesn’t necessarily pertain to states that don’t
offer much protection in the way of your home in a bankruptcy,
such as Illinois.
3. Many consumers that get debt consolidation loans
find that several years later they end up in the same
situation---buried in high interest credit card debt
and only able to afford the minimum payments. The problem
lies in the fact that debt consolidation does not address
the root of the problem, and therefore, consumers continue
to overspend and charge things to their credit cards
instead of living on a cash basis. In a lot of cases,
debt settlement consolidation helps a consumer to learn
to live within their means by forcing them to close
all their credit card accounts. If your problems lie
mostly from overspending and poor budgeting, then a
lot of times a debt consolidation settlement program
is a more appropriate option.
Robert Zangrilli is the CEO of Franklin Debt Relief.
FDR specializes in debt settlement consolidation where
a client takes out a second mortgage and uses it to
fund their debt settlement program. Clients who do this
are able to reduce their load by up to 40 percent and
become debt free with credit cards in as little as 2to3
months.
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We do not purport to offer financial advise, the articles
shown on these pages are written by third parties and
any information contained therein is NOT to be taken
as financial advice.
LOANS SECURED ON YOUR HOME THINK CAREFULLY BEFORE SECURING
OTHER DEBTS AGAINST YOUR HOME. YOUR HOME MAY BE REPOSSESSED
IF YOU DO NOT KEEP UP REPAYMENTS ON A MORTGAGE OR ANY
OTHER DEBT SECURED ON IT. 12.8% APR Typical Variable
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