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SolveYourProblem.com Article Series: Debt Relief & Debt Consolidation
I Want To Get Rid Of My Debt...NOW!

    

HELOC for Debt Consolidation: Say NO
   

So you have gotten to the point where the whole debt thing is completely overwhelming and seems to be taking over your life. You're at the point where you're not quite sure what to do? Do you try to get a debt consolidation loan and if so what kind? What exactly is a HELOC debt consolidation type of loan? Is it a good idea?

First of all you may be wondering what a HELOC debt consolidation loan is exactly? What does HELOC stand for? Well HELOC stands for Home Equity Line of Credit. So basically a HELOC type of debt consolidation loan is something that is borrowed against the equity in your home. There are a few differences though, you are only making payments on the interest and not the principle and you generally get the loan for less time. This in itself can be a downside to a HELOC type of debt consolidation.

Of course, not having enough equity or no home to use can also put you at a disadvantage in getting a HELOC type of debt consolidation loan. In this case there are plenty other of options out there available to you. Having a lower payment can seem like a good deal at first. But you have to remember that the reason you have a lower payment is because you are only paying down the interest without the principle being touched at all. This can be a huge disadvantage in the long run. Eventually you will have to pay on the principle and this can leave you with more and/or higher bills in the end. This is why many people choose not to go with the HELOC debt consolidation loans.

One thing that can result in using a HELOC debt consolidation loan is if you decide to sell your house in the future. Because you are unable to pay down the balance of the principle amount and you are using the equity you have in the house for the loan, you stand to gain nothing from the sale and perhaps even lose if you are not careful. This can be a huge and devastating disadvantage to a lot of people.

Sometimes it can also be hard to understand the terms of a HELOC debt consolidation loan. Be sure you are completely clear before signing everything. A lot of lenders who use HELOCs don't like to explain everything and this can be a problem. You need to be able to understand what you are getting into and for how long. Those who aren't willing to explain to you aren't worth doing business with. Another problem that can arise with these types of loans may actually seem like an advantage at first. For example in HELOC loans you are able to keep borrowing against your equity for more and more up to a certain amount. This can seem like a very tempting offer. But this could also get you into just as much trouble as what got you there in the first place. In this type of loan you are almost being treated as though you have another credit card, which usually caused most of the problem in the first place. If this doesn't convince you to look elsewhere for debt consolidation loans, I'm not sure what will.

Another reason that can be a problem in taking out a HELOC debt consolidation loan is the risk involved. There is a very high risk involved in putting the equity and even your house itself on the line. If for any reason, within and without of your control, you are unable to make a payment, you could end up losing your house. This is a huge con in most books. Something else that should be considered when trying to get a HELOC debt consolidation loan is that the interest rates are usually variable. Because of this it could mean that your payment could change at any time. This is definitely a huge downside to HELOCs. One last thing you should consider is the housing market itself. If for any reason the market fluctuates you could be setting yourself up for a loss.

Taking into consideration all these variables that can affect the success of using a HELOC debt consolidation loan is a huge step. But it is a step well taken and looked into carefully before deciding on this option in debt consolidation. In the right conditions, meaning a good and steady job and a good plan a HELOC may be able to work for you. But for most the best thing is to avoid HELOCs as much as possible.

# # # # #

SolveYourProblem.com : 2007

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