One Way Debt Consolidation Loan Means You Bet The House |
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Being in debt is not very conducive to a
peaceful life and as such you have to find ways and means to reduce your debts. One of the many solutions is to go in for debt consolidation loans, which can give you a new lease of life, so to say. A debt consolidation loan allows you to consolidate all your loans into one, and permits you to make one easy monthly payment and that too at a lower rate of interest. However, before taking on a debt consolidation loan, it is important to analyze whether you will be able make the payments against the new debt consolidation loan if you encounter adverse circumstances such as bad health, loss of job or other unfortunate financial surprises which might pose problems in sticking to your payment commitments. If you have taken a secured debt consolidation loan, you will be betting your house that you will be repaying your debts and if something untoward happens, you will be left high and dry. You must realize that a secured debt consolidation loan is another name for a home equity loan or second mortgage. They are basically the same although they have different names and you must make an effort to learn more about them before taking such a loan. A secured debt consolidation loan is the same thing as a home equity loan, which is a loan that you take out as a second mortgage on your house. It allows you to use the equity that you have built up in your house to liquidate your debts. Basically equity is the monetary interest that you have in your house and it is calculated by subtracting the amount you have left to pay on your mortgage from the appraised value of your house. This figure represents the amount that you can use to pay off your debts, if you take out a home equity loan. Disadvantages of a secured debt consolidation loan For getting a secured debt consolidation loan, you will have to use your house as collateral and as such you will be putting your house at risk. The obvious disadvantage of taking a secured debt consolidation loan is, therefore, the risk of losing your house in case you are not able to make your loan payments. Many people are turned off from taking a secured debt consolidation loan simply because of this risk factor. The other disadvantage of a secured debt consolidation loan is that it is in effect a second mortgage and it is usually for a period of 20-30 years. This means that you will take a much longer time to pay off your debts and as such you will be paying much more because of the length of time it takes to pay off a secured debt consolidation loan. Advantages of a secured debt consolidation loan There are many advantages of taking a secured debt consolidation loan. 1) The interest rate is almost always fixed and it is at a lower interest rate than your credit cards. 2) The interest is often tax-deductible as the secured debt consolidation loan is secured by real estate. 3) All your separate monthly payments to your creditors will be combined into one single monthly payment. As such your monthly payment is likely to be a lot lower than the combined monthly payments of all the debts you can wipe out. You can, as a general rule, only include unsecured debts, such as credit cards, student loans, old unpaid utility bills, and medical and legal bills. You will certainly have to weigh your options before you go in for a secured debt consolidation loan. Whereas on the one hand, it can make life much easier by way of one single payment at a lower interest rate and freedom from harassing calls from creditors, the risk of losing your house can be a big dampener. |
