Debt Consolidation Planning
Eliminating your debt is an goal that many people aspire to, and understandably, given the manner in which debt can impact every aspect of your life. The continual anxiety that stems from debt can be overwhelming. Debt consolidation is a great step in the right direction for getting your financial life back in order. It’s not the end of the road as the debt still needs to be paid off, and the consumer needs to develop and put into play responsible financial habits. However, taking the first step can result in a lower monthly bill and a far more manageable financial situation. It can also do wonders for improving your credit score. Having one bill instead of four or five is fantastic.
While you don’t need to be a homeowner to gain access to a debt consolidation loan, it certainly does grease the wheels on the process if you are. Using your home as the collateral to gain a house makes it much easier to get a debt consolidation loan. Certain terms must be agreed to, but aspects such as the interest rate can be negotiated. How much the loan is for depends on how much debt you have and how much your house is worth. Usually, a lender will only consider a loan that is worth 80% of the value of the house. This is primarily because banks want people to be able to pay them back. At the end of the day, this leaves some value left to the house in case things go south.
Debt Consolidation Mistakes
A thorough understanding of all the stipulations in the loan is required for any responsible consumer looking to put their home on the line. A subset of lenders out there will penalize you if you refinance before a certain point in time. Some lenders will lend you even more than what your house is worth, which is dangerous if one wants to move, as the house being collateral would prohibit such a move. Consolidation loans with these terms are strongly recommended against. It’s always a good idea to try your hardest to pay down the debt so your home regains equity.
Investing the equity of your house repeatedly can be dangerous. When one begins to think about the assets they can leave their children when they pass, but these assets are tied up in loans due to cyclical debt, the next generation will be the ones to suffer.