by Paul Sarwana
For a homeowner who has considerable unsecured debt and a fair amount of equity built up in property, a home equity debt consolidation loan makes good sense. However, for some people, the decision is simply a way to get farther behind.
A low-interest equity loan is in reality a second mortgage against your house, which acts as security. The advantages are tax write-offs and interest that is both lower and computed differently, as well as a longer time to repay the obligations. However, for some the disadvantages of using this strategy may outweigh its positive features.
The rate of interest on a mortgage is generally much lower than on unsecured debt, as well, and the prepayment time is longer. This means a lower monthly payment which will cover many smaller bills.
You need to remember that your home is in most cases your biggest asset and that incurring more debt against it increases the chance that you might lose it to foreclosure. This used to be a minor consideration when unemployment was low and the economy booming, but losing the family home has become a sad reality for many. You will want to weigh the factors of job security and the downturn in home values when making this decision. It is wise to have a cushion of savings to allow for a period of unemployment, whether due to sickness of loss of a job.
This is a step that only makes sense if two things are established. First, the amount of unsecured debt should be quite high. There will be fees to pay, as in any refinancing, and this increase in the total debt must be small compared to the benefits that will result from the transaction.
Experts say that all store accounts (usually carrying very high interest rates) should be closed and credit cards cut up so they may not be used for incurring new debt. You may want to keep those accounts open but they should be off-limits until the debt they helped you run up is gone. By then, hopefully you will be devoted to living on a cash basis.
With a strict budget and the determination to stick to it, debt consolidation may be a very smart thing to do. Having one payment a month to keep track of rather than several makes your bookkeeping easier. In case of a late or missed payment (which should never, never happen), there will be only one late charge and one mark against your credit, too. Since the payment will undoubtedly be lower, you will be able to pay a little more on the principal every month, thereby cutting the low interest rate even more.
With self-discipline and a focus on getting rid of obligations, home equity debt consolidation is good strategy for a debt-free future. - 41115
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New Unique Article!
Title: When Is Home Equity Debt Consolidation A Smart Decision?
Author: Paul Sarwana
Email: careerswitch@gmail.com
Keywords: loans,debt consolidation,debt and bankruptcy,financial services,personal finance,finance
Word Count: 467
Category: Finance:Debt Consolidation
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