Consolidating Loans

Are you having trouble meeting your debt obligations each month? Are you using credit cards to pay for day to day without paying the charges off each month?

If you own your own home, you might want to consider the merits of a consolidation loan refinance. This would merge all your bills into one monthly payment that will be less than you're paying today, and you will probably save on interest charges, over-limit fees, and late charges .

A consolidation loan refinancing will assist in helping you get some breathing room and give you the opportunity to clean up your credit score. But there are things you need to consider so you don't put yourself in a worse position than you already are.

You have three choices when it comes to a a debt consolidation scheme.

First, you can refinance your existing first mortgage. If financing rates are favourable, and you have enough equity after paying off your debt, this could be the best way to go.

If the prevailing interest rate is at or below the interest rate on your current loan, this may be the preferred strategy. However, if the interest rate is higher than your current mortgage rate, be very wary. That's because you will not only be paying interest on the debt you're you are trying to clean up, you will be paying the higher rate on your existing mortgage, and that's surely not a desirable outcome.

Secondly choice is to consider taking out a second mortgage - This strategy is preferred if you don't want to be paying off your bills for 30 years as you would be by refinancing your first mortgage. With this option you take out a loan for a specific amount of money and repay over five to fifteen years.

The advantage of this loan is you pay off your bills and don't have the temptation you would have with a Home Equity Line of Credit to spend the extra money that may be available on other purchases that increase instead of decrease your debt. Another advantage is that you can find fixed rate second mortgages which, in my mind, are preferable to variable rate mortgages.

Thirdly is to borrow a Home Equity Line of Credit or HELOC. With this option, you commit to revolving line of credit that that you can fall back on when you want to pay bills and expenses.

The beauty of a HELOC is that you just pay interest on the money you actually use. Even if your line of credit is $10,000, if you only use $5,000 you only pay interest on the $5,000 which will save you money.

If you choose a HELOC to consolidate your debt, use it with caution. Usually, the lender will structure the line of credit to maximize their leverage against the equity you have in your property. Your challenge is in resisting the temptation to spend the extra money. For example, let's say you have an additional $10,000 available in your HELOC after you've paid off your bills. For many folks that's an invitation to spend that additional $10,000, so they end up deeper in debt than when they started. It's a vicious cycle.

Using a home refinancing to consolidate your obligations is a suitable strategy to clean up your bills, but use it wisely, carefully. Don't put yourself in worse condition than where you started. And when you’ve paid them off, cut up your credit cards! You'll sleep much better after you do.

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Nick Hurd is the developer of consolidationsecrets.com and has written many articles assisting people to get out from mountains of debt. You will find lots of additional information at Consolidate your credit card debt Consolidate your bills and get over the turmoil

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