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Article Series: Debt
Relief & Debt Consolidation
I Want To Get Rid
Of My Debt...NOW!
Are
Home Equity Loans a Debt Consolidation Solution or Nightmare?
If you are a homeowner, you probably also
have some unsecured debt. After all, most homeowners
had to establish credit prior to being rewarded with a thirty
year
mortgage loan. Consumers usually establish credit by means
of using credit cards, department store cards, or even automobile
loans wisely and responsibly, thereby proving to creditors
that they are able to handle loans and credit and that they
will most likely repay whatever they owe.
Homeownership itself may present you with some bills you might
not have counted on. After all, when the roof leaks or the
toilet is backed up, you can no longer call the landlord to
come in and fix it, but instead you will have to do so yourself
and on your own dime. Usually this means going to the local
big box home improvement store, and perhaps signing up for
a store credit card. Other times it might mean applying for
another credit card and then putting a new roof or a costly
plumbing job on the plastic.
Yet all these little expenses and left over debts from the
pre-homeownership days add up, and before you know it, you
might be struggling to make ends meet. It does not take much
to topple your budgeting efforts. If you have an adjustable
rate mortgage, you may have already experienced the crunch
on your budget with ever-rising rates. If you have a fixed
rate mortgage, you may still have experienced the crunch, maybe
in the form of supplemental tax statements or maybe when the
escrow office of your lender informed you that in the lat calendar
year not enough funds were withheld for the escrow account,
and the shortage will now have to be made up, adding another
three- to four-hundred dollars to your monthly bill.
If
you find yourself in such dire financial straits, you still
have options available. You may choose to consolidate
your outstanding debts via loan. Homeowners usually find the first
place to look at is the idea of a home equity loan, yet beware!
A home equity loan may be a consolidation solution or a nightmare!
Here are some pros and cons on the home equity loan as debt
consolidation vehicle:
Con: If you have mostly unsecured debts that are choking the
life out of your budget, you will be paying them off with a
secured loan, which is guaranteed by your own home! In reality
this simply refers to the fact that the credit card company,
should you be unable to pay them, may ruin your credit, send
you to collections, and declines you any further credit, but
this is about as much as they can do. If you are unable to
pay your home equity loan, on the other hand, your lender can
force the sale of your home by means of a foreclosure, leaving
you essentially homeless.
Pro: If you are able to pay your mortgage and home equity
loan every month, you will be able to save a lot of money.
The odds are pretty good that the interest rate on a home equity
loan is lower than the median interest rate of your credit
cards and department store cards.
Con: Unless you cut up your cards and cancel your credit accounts,
the odds are pretty good that before long you will be running
them up again, and now you will not only have to once again
pay your creditors, but also your home equity loan.
Pro: Not all home equity loans are created equal. As a matter
of fact, you can usually choose between a fixed loan that has
a fixed interest rate and a fixed number of payments, or a
line of credit with a variable rate that will permit you to
take out only as much as you want, and that will permit you
to continue to draw against it as you pay it down. These loan
options, however, are not always available if you have had
a bankruptcy on your credit in the last seven years.
As you can see, a home equity loan might be your consolidation
solution or your nightmare, depending on your individual financial
situation. Since this involves your biggest asset, your home,
it is wise to weigh all your options, shop around, and ask
lots of questions of prospective lenders.
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SolveYourProblem.com
: 2007
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