Paying Off Debt through Home Equity Debt Consolidation
Posted by: Henry Baum | Feb 28,2008
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Aspiring homeowners often wait until the prime interest rates hits an attractive level before applying for a home. Existing homeowners should always be looking to do the same. The time of gauging interest rates should not be over after you secure a mortgage. Why? Two major reasons: home refinancing and debt consolidation.
Home refinancing is the process of restructuring your mortgage with better terms: for both the amount you owe every month and the level of the interest rate. The money you save can then be used to pay off your debt like high interest credit card debt.
The Value of Debt Consolidation vs. RefinancingRefinancing is not nearly as effective for paying off debts as debt consolidation. Certainly with home refinancing you’ll be able to put more down towards your debts every months. Still, this is a piecemeal process and it could take several years for you to be fully out of debt. This is no knock on home refinancing, but if you’re most concerned about debt repayment than home equity debt consolidation is your best bet.
What You Get with Home Equity Debt ConsolidationDebt consolidation is a much different process. Instead of getting a small amount of money to pay off debts, you take out a sizable loan and pay off your existing debt all at once. You borrow money off the equity on your home and then use that money to pay off credit card debt, and other debt, in full. You then pay off that single loan, which has a lower interest than the collection of combined debts. As credit card debt normally has the highest interest rate of any kind of loan, it’s virtually guaranteed that you will have a lower interest rate through a debt consolidation loan than if you paid off your credit card debt individually.
What this means is that you will get out of debt sooner. Not only are your credit cards free of debt, but you’ll be able to pay off the debt consolidation sooner than if you paid off your credit cards one at a time. In the long run, this time of debt repayment plan can save you money.
Concerns about Debt Consolidation LoansThat’s the good news. There are some issues that must be addressed with a debt consolidation loan as well. Being that you’re borrowing money off your home equity, it is imperative that you pay off the loan. In addition, just because your credit cards are emptied of debt this does not mean you can go on a huge spending spree. You still have to meet the terms of the debt consolidation loan and additional credit card debt will make the consolidation loan more of a burden.
Overall, though, a home equity debt consolidation loan, or a debt consolidation borrowed through a different source, is one of the better ways to pay off debt all at once and ensure that you will be debt free.
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