Debt Consolidation Information

Loan Consolidation and paying off debt are probably the two biggest things that we frown upon and what we believe helped lead our country toward the debt mess that it is in today.

In these scenarios, people often took out personal loans or Home Equity Loans (HELOC) to pay off their credit card debt. This accomplished two things. It turned unsecured debt (credit cards, medical bills, etc.) into secured debt (a loan against your home). Second, it paid off the credit cards easily, leaving a false sense of security that “as long as my house rises in value, I can use it as an ATM machine to pay off credit card debt.”

Is there an advantage to using a HELOC to pay off my debt?

In some instances the answer is yes, in that you could probably get a lower interest rate than what the credit card companies were charging you. In addition, this interest could be used as a write off on your personal taxes.

What are the biggest disadvantages?

  • Once again, there is a false sense of security in paying off debt.
  • Should you lose your job or have an unforeseen accident, your house is now on the line as secured debt and you could lose your home.
  • Now you have two payments to make each month. Your initial mortgage payment and now the HELOC payment.

What if I simply got an unsecured loan, not against my house?

You could do this, however, most lenders charge a much higher interest rate on unsecured loans. In addition, it could be viewed on your credit scores as being overextended; you could be viewed as someone not able to handle his/her finances.