If you're a homeowner, you may want to consider the merits of a consolidation loan refinance. This will merge all your bills into one monthly payment that will be smaller than you're currently paying, and you will likely save on interest charges, over-limit fees, and late charges .



A consolidation loan refinancing will help you reduce stress and give you the opportunity to improve your credit. However there are things you need to consider so you don't end up in a worse state than you already are in.

You have three options when it comes to a a debt consolidation plan.

First, you can refinance your existing first mortgage. If interest rates are favourable, and you have sufficient equity after paying off your bills, this may be the preferred way to go.

If the current interest rate is at or lower the interest rate on your current loan, this is almost sure to be the logical strategy. However, if the interest rate is more than than your current mortgage rate, be very cautious. That's because you're not only paying interest on the debt you're you are trying to clean up, you are subject to the increased interest rate on your primary mortgage, and that's probably not a good thing.

Secondly choice is to consider to take out a second mortgage - This option is preferred if you don't want to take 30 years to pay off as you would be by refinancing your first mortgage. With this alternative you borrow for a specific amount of money and repay over a term of five to fifteen years.

The advantage with this strategy is you pay off your bills and you can resist the temptation you would have with a Home Equity Line of Credit (HELOC) to spend the extra money that might be available on other purchases that leave you deeper in debt. Another advantage is that you can find fixed rate second mortgage loans which, to my way of thinking, are preferable to variable rate loans.

A third option is to borrow a Home Equity Line of Credit or HELOC. With this option, you commit to revolving line of credit that is available when necessary to pay bills and expenses.

The benefit of a HELOC is that you only pay interest on the money you borrow. Even if your line of credit is for $10,000, if you only use $5,000 you only pay interest on the $5,000 which can save you money.

If you choose a loan secured by your home's equity to consolidate your debt, proceed it with caution. Often, the lender will set up the loan to maximize their leverage against the equity you have in your property. Your challenge is to resist the impulse to spend the extra money. For example, let's say you have an additional $10,000 available in your equity loan after you've paid off all your bills. For many people that's an invitation to spend that surplus $10,000, so they end up deeper in debt than when they started the process. It can be vicious cycle.

Using a home refinancing to consolidate your credit obligations might be a desirable plan to clean up your bills, but use it with caution. Don't put yourself in worse shape than where you started. And when you've paid them off, get rid of your credit cards! You'll sleep much better after you do.