Common debt consolidation options include taking out a personal loan, transferring credit card balances to a new account, or getting involved in a debt consolidation plan with a financial professional. Other options include home equity loans and mortgage refinancing. Before you decide on a method of consolidating your debt, you need to understand how a home loan can help you get your finances under control.
Definition
A home equity loan is an amount borrowed against the equity you have built up in your home. Equity is the difference between what you owe on your mortgage and the value of your home. A home equity loan is commonly structured to be paid back in 36 to 60 months. A mortgage refinance involves taking out a new mortgage to pay off the old mortgage. In some instances, people borrow more than they need for the old mortgage, and use the difference to pay off other debts.
Benefits
The interest payments on home equity loans and mortgage refinancing loans are tax deductible, and you can negotiate a lower interest rate on your home loan than you carry on your credit cards, according to financial expert Liz Pulliam Weston. This means that using a home loan to consolidate your debt will not only reduce your interest obligation, but can also become a regular tax deduction.
Considerations
Home equity loans and mortgage refinances are both secured loans that use your home as collateral. If you default on your home loan while trying to pay off your debt consolidation, you run the risk of losing your home.
Warning
When you consolidate debt using a home loan, you are moving unsecured credit card debt into a secured loan. You are not eliminating the debt; you are simply shuffling it to a new account. In order to make your debt consolidation plan truly effective, you may need to seek credit counseling to help you control your credit spending.
0 comments:
Post a Comment