Get out of Debt with Consolidation Loan

First we know that on one cannot borrow their way out of debt. It just isn’t possible, because for one thing; if you keep borrowing you can simply make bad matter worse. Debt consolidation is not all bad, but any person must know that to consolidate a large number; say 25k credit card debt, there must be collateral. With a credit debt usually there is no collateral unless of course you have a car which is value this high or you have sufficient equity in your home.  Normally there are not that many assets you can use for collateral. It depends upon what you own.

Some people do not think twice about refinancing their home to pay off their debts because it gives them some immediate freedom. This can be beneficial if: 

 1.  You can lower your interest rate by 2 % plus

 2.  You can pay the closing cost out of pocket

 3.  You can lower the term instead of putting it back to 30 years

This means that you are still trying to cut your mortgage short so that you can be completely out of debt at some point and this will build your equity back up faster. There are some banks who will make the HELOC (home equity line of credit loan). These are the loan that are based upon prime rates and you are allowed to pay interest only payment for the first five years or so.  After the initial five year period, these home equity loans are then amortized over the remaining term.  The payment will be higher if you have not paid any principal payments during the interest only period.  These have lost some of their flavor since the mortgage overhaul, but they still exist. You may also request a fully amortized payment; this is the best policy, but very few people do.  It is just so easy to use those extra dollars that could be paid on principal; for something else.

When applying for an equity loan or refinance you would go about it the same way you did when you purchased your home. The bank or mortgage company will want to review your credit, income, employment history, assets and most importantly make sure your home has not lost any value. You will need to have certain credit scores and equity in your home and debt to income ratios that are acceptable.

In this economy, even with the interest rates at 4.3% +-; a wise man or woman will think twice before adding to their current mortgage. Jobs are not secure yet; the economy is not as good as we have been told and the market is still unstable. Homes are still losing their value. The soundest advice that can be given is to get a second mortgage with a fully amortized repayment plan; if you must use your home for collateral.  You can pay off your credit card debts more timely (like you would your vehicle) and then you are done. That is, of course if you cut up those credit cards, and refuse to use them again. Most people do not and this again can put you back into the same financial position you have just gotten out of. Don’t do it; throw them all away, saving only one for emergencies and travel.

What one should consider in getting any further credit is being sure this will cure the debt crisis.  Will it be good for the long term or is it just a quick fix? The latter does not help you, and will definitely make your situation worse. Are you about to get a raise at work? Can you save money any other way?  Is it possible that you could start paying down more principal of your credit cards or loans, and then payoff another? Can you get a part-time job?  With the depressed job market; these are not plentiful, but sometimes this might suite the situation better than refinancing your home or getting another installment loan.

Finance companies make loans also for consolidation. They do require collateral for large amounts and their interest rate are usually higher. These are not recommended unless you have no other choices. There guidelines are sometimes less restrictive.

Debt consolidation is sometimes the only answer to survive, and it can be of benefit if you choose the type of loan wisely, and repay the debt as quickly as possible without making further debts.