If you already have a home equity and you are neck deep in credit card liabilities at excessive interest rates, then maybe you could consider taking the opportunity to settle your debts by applying for a home equity loan.
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Debt Consolidation Through Secured Loans
If you already have a home equity and you are neck deep in credit card liabilities at excessive interest rates, then maybe you could consider taking the opportunity to settle your debts by applying for a home equity loan. It is a very practical option that can facilitate your loan approval easily without destroying your credit record. If you have home equity already, you should take into account using your home equity first before trying for other options and this goes for debt consolidation as well. However, as practical as it may seem, it could have some damaging consequences if not properly handled. All things should be properly weighed before you choose any option, because it should be one that would save you from your financial woes and not bury you deeper.
1. You should take into account that if you default on your monthly payments, you can lose your home. If you have even the slightest doubt that you can manage your monthly payments for the debt consolidation loan, then just forget about this option. If you make a loan with your home as the collateral you could be taking a great risk when you could have other alternatives open to you. Do not base you capability to pay on expected windfalls such as closing a big deal or additional salary because of promotion at work. Remember Murphy's Law: "If anything can go wrong, it will".
2. If you go for debt consolidation using home equity, you will no longer be able to file for bankruptcy later if things turn from bad to worse since you have changed the status of your unsecured debts into secured debts. Contrarily, if you did not go for debt consolidation and you have lost all means to pay for your debts, then filing for bankruptcy could still be an to option to wipe out your debts and still have a place to go home to. This condition is applicable if you are able to pay for your initial mortgage but had been reversed because of the pressures of paying for the home equity loan. This is especially true in states like Massachusetts, Texas, Florida, Iowa, Arkansas, and Oklahoma as they allow homestead exemptions for residents who have filed for bankruptcy. On the other hand, this will not have much bearing on states like Illinois where the federal government does not give any protection to their residents who are in a state bankruptcy.
3. A lot of individuals who opt for debt consolidation loans realize after a number of years that they are still in the same financial rut - drowning in excessive interests on credit card debts and barely meeting their minimum payments. For one thing, debt consolidation is a temporary solution that does not take up the real cause why one is always in constant debt which is, mainly, spending beyond their means. Spending has become easier because they just have to flash their plastic cards rather than actually pulling cash out of their pocketbooks. Sometimes, debt consolidation works when the individuals are forced to cancel all their credit cards and just live within their means. Debt consolidation, to a certain degree, can surely help control an individual's propensity to excessive spending and compulsive buying. But the real answer lies in the person as his resolve to cut down on spending will be in exact proportion to his desire to put his life in order by being debt-free at last.
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