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A Debt Consolidation Home Loan May Be The Perfect Financial Tool To Help You Lower Your Debt Payments And Begin To Eliminate Your Debts...

Or It Could Be The Beginning Of A Very Slippery Slope That Leads You To Financial Ruin

There is a reason that we caution our visitors when it comes to considering a debt consolidation home loan as a vehicle for eliminating their debts. The reason is as follows. Many people who take on a home equity loan, HELOC or choose a cash out mortgage refinance to pay off their consumer debts open themselves up to financial disaster.

Here is the worse case scenario. You take out a $25,000 debt consolidation home loan at 9.5% to pay off $25,000 in credit credit card bills that carry interest rates of 19.5%. The good news is that you are saving 10% interest every month. The bad news is that many, many people in this scenario will turn around and "rack up" their credit card bills for another $10,000 to $25,000. Now they have 2 debt payments to make instead of one, and, now their house is at risk!

So what is the answer? Let's first of all take a look at the pros and cons of a debt consolidation home loan and from there you can decide whether or not this type of debt relief is right for you.

The Advantages Of Debt Consolidation Home Loans

In the right circumstance, using a home loan for debt consolidation can be an ideal solution. The pros include:

  • Reduced Interest Rates - Typically the interest rate that you will receive on a home loan will be up to 50% less than what you are probably paying on your credit card debts right now. This factor alone could reduce your monthly payments dramatically and save you thousands of dollars over the life of the debt.

  • Longer Payback Period - Many debt consolidation home loans can be amortized (paid back) over 20 to 30 years in some cases. By spreading you debt loan payments out over a longer period of time you will lower your monthly payments to amounts that may be more manageable.

  • The Interest "May" Be Tax Deductible - Interest payments made on debt secured by your personal residence are "usually" tax deductible. (We say usually because if you borrow more than 100% of the value of your home this benefit may not apply, so consult your tax specialist. Because the interest on unsecured consumer debt is not tax deductible, a debt consolidation home loan can further enable you to decrease the actual amount of your debt payments every month.

There are many companies, both online and offline, that you can work with to obtain a debt consolidation home loan. Now let's take a look at some of the disadvantages of using a home owner using a debt consolidation loan.

The Disadvantages Of A Debt Consolidation Loan For A Home Owner

At the beginning of this article we touched upon some of the "cons" of a debt consolidation loan for homeowners. The truth is, experts in the personal finance field disagree often on whether or not homeowners should take out a debt consolidation home loan.

On the surface it looks like a 'no brainer'. Lower interest, longer pay back period, the possibility of the interest portion of your payments being tax deductible. But, as mentioned above, the big caveat is whether or not you can refrain from running up your consumer debt again.

Our advice? If you do decide to pursue a debt consolidation home loan... cut up your credit cards! I know you have probably heard that before, but if you don't you could be putting your credit and your house in jeopardy.

Another measure that you can take to make sure that you don't find yourself in the same predicament in the future is to organize your money more effectively. One excellent product that we recommend is the money management software developed by Mvelopes. This product will help you organize all of personal finances and make it easy. Get more information on the Mvelopes software here.


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