Many people discover that their credit card debt is out of control when they get their monthly bank statement. Mortgage payment, everyday spending, services and occasionally getaways or dining out can bring your balance over-the-limit fees. It's time to consider debt consolidation to save your money - credit card balance transfer, home equity loan or mortgage refinancing.
One of the best ways to obtain debt relief is by consolidating your debts with a mortgage refinancing if the timing is right. Refinanced mortgage is a form of debt help for the borrower, who will be able to pay down the old mortgage with the money of a new loan. The benefit of mortgage refinance is based in not only debt consolidation of other debt, but in getting a lower interest rate, lower pay off, and taking cash out of the home equity. Although every borrower may have their particular reason for applying for a new loan, all of them share the desire for debt relief by reducing their mortgages' interests' rates and liquidating cash from their home equity when possible. Mortgage refinancing usually costs a couple of thousand dollars in closing cost besides the time you spend on research, application etc. Debt advice on home mortgage can easily be obtained through the mortgage lender, mortgage broker, financial institutions and Government Consumer Protection Offices.
Because secure loans and mortgages are backed up by collateral property or a guarantee for any other sort of asset, lowering the rates means more savings and debt relief. Mortgage refinancing could quickly reduce your debt if done properly. Mortgage refinancing lets you cash out your equity to be applied for debt relief purposes, and allow you to qualify for lower rates than a home equity loan. A single mortgage is often considered less risky than having two loans.
Taking a shorter term in your mortgage refinancing may further lower the interest rate. For instance, if your original mortgage is a 30-year loan, you may consider a 15-year mortgage while refinancing the loan. The monthly payment of a 15-year loan is about 20-30% higher than the one of a 30-year mortgage, not as high as out intuition tells us.
Genuine debt help comes when you weigh the pros and cons of debt consolidation. Obtaining a mortgage refinance may be the best option for debt relief, remembering that you will have to follow a similar process like the first time application so make sure to keep a good credit history before you apply. Be sure to get mortgage quotes from at least three mortgage lenders before you commit. Weight the pros and cons of your current mortgage, and compare the actual interest rates you are paying off in comparison to those resulting from your new debt management perspective, considering collateral involved in the debt and possible future risks as well. Your financial adviser can offer valuable advice for your debt relief.
All across the web you'll see advertisements touting debt consolidation as an easy ticket to financial freedom, and if you're struggling financially then their promises can seem very enticing indeed. However, what the marketing people don't often tell you is that unless you use consolidation wisely it can actually make a bad financial situation even worse. You could end up with even greater debt problems, and even run the very real risk of losing your home.
Having said that, there's no doubt that debt consolidation CAN work for you, so long as you use it wisely. So what should you be considering before committing yourself to taking out that loan?
The first and most basic factor to weigh up is whether or not you can get a loan at a low enough rate to make it worthwhile. The basic premise behind consolidation is that you're attempting to lower your monthly repayments in total. If, after adding up all your current credit commitments you find that a loan you're offered can clear them all and yet result in a single lower monthly figure then it's worth seriously considering. If poor credit or other factors mean your loan is more expensive and won't give you a considerable or even worthwhile monthly saving, then debt consolidation might well be a seriously bad move.
The reason for this is that you're likely to be moving unsecured debt such as credit cards into secured debt, which necessarily means you're potentially putting your home at risk. If you fail to keep to the repayments, you may find you'll enter into the nightmare of repossession and eviction, even if your debt is only a fraction of your home's value.
With unsecured debt, on the other hand, while the consequences of defaulting can be severe in terms of credit rating damage and even insolvency, your home won't normally be put at risk. Debt consolidation is therefore a risky move unless you're certain that it will in fact result in a sensible repayment figure that you can keep up with.
The other major risk of consolidation is that by clearing your current debts, and hopefully having a little extra spare cash each month, you might be tempted into using all those lovely empty credit card accounts to treat yourself after the worries and struggles of your recent financial hardships. This is, obviously, a terrible mistake - but it's one that it's all to easy to make.
In the worst cases, you could find yourself running up new unsecured debts which you need to service, all the while having the new secured consolidation debt hanging over you as well. To avoid this, it's absolutely essential that you cut up your plastic to stop you being tempted to use it, and also to contact the card issuers and tell them to close the accounts down to remove all possibility of running up new debt. If you need to use plastic for payment convenience, consider a secured (prepaid) card or a debit card instead.
None of this should discourage you from restructuring your finances with a consolidation loan if you can determine for sure that the benefits will ease your financial burden, but always bear in mind that consolidation has risks as well as rewards.
Both Natalie Aranda & Martin Sumner are contributors for EditorialToday. The above articles have been edited for relevancy and timeliness. All write-ups, reviews, tips and guides published by EditorialToday.com and its partners or affiliates are for informational purposes only. They should not be used for any legal or any other type of advice. We do not endorse any author, contributor, writer or article posted by our team.
Natalie Aranda has sinced written about articles on various topics from Life Insurance, Health Insurance and Desserts. Natalie Aranda writes on finance, and . Be sure to get. Natalie Aranda's top article generates over 4400 views. to your Favourites.
Martin Sumner has sinced written about articles on various topics from Marriage, Payday Loans and Debts Loans. Martin is a personal finance writer working for Debt Sorter, where you can read more about and other ways of dealing with. Martin Sumner's top article generates over 40500 views. to your Favourites.