Loan Consolidation

Debt Consolidation Loan

If you own a home, you probably have received many offers to borrow money to consolidate your unsecured credit card debt. These loans are tempting, because they offer to end years of financial problems through reduced payments.

Here are some things to consider if you are considering a debt consolidation loan and using your precious equity as collateral.

With either a home equity loan or a second mortgage, you may incur substantial up front costs for application fees, a title search, attorneys fees and points (a percentage of the loan amount).

You run the risk of foreclosure. With either type of these loans, you are trading short-term unsecured debt for long-term secured debt (you are essentially spreading the payment of last month’s dinner over 15 or 30 years). If you get into a financial bind and are unable to make your payments, your home may be at risk for foreclosure.

Using credit to pay off other credit can become a vicious cycle. You cannot borrow your way out of debt. Although debt consolidation loans feature low monthly payments, the loans are extended over a long period of time and you end up paying substantially more in interest.

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American Debt Solutions, Inc., a Non-Profit Credit Counseling Agency is a 501(c)(3) nonprofit organization providing consumers with free credit counseling and education as well as economical debt management services.