Consolidating Debt into your Home

Secured debt consolidation can reduce the amount you have to repay by lowering your interest through a loan that is secured by your home. While certainly this is a big advantage, there are some risks connected to refinancing your mortgage or getting a home equity loan to repay unsecured debt. Perhaps most importantly, using your home to secure a loan to repay debt means you are raising the risk of foreclosure. The monthly payments from your loan therefore must be low enough that you will not start missing payments even if something unexpected comes up.

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Your repayment plan must be based on income that is secured not on the hope of something that has not yet happened, such as a raise in the future or on winning the lottery. If there is even a doubt about whether you can afford your new loan, it is best you consider a debt relief solution, such as debt settlement or credit counseling instead.

Another thing to consider before consolidating your debt into your homes is it could block the possibility of using bankruptcy, credit counseling and debt settlement for help to repay your debt. However, with a debt settlement plan, bankruptcy is still available to you if you let your debt remain unsecured on your credit cards, which means you can get rid of the problem debts without losing your home.

The tendency for consumers to overspend on credit cards and for poor budgeting may not be addressed by debt consolidation loans. You get the loan and repay your debt, but may end up in basically the same situation some years later if you don’t address the root of the problem, which is usually overspending. Debt relief solutions are a better choice because part of a debt management plan will be to educate you on budgets, living on a cash basis and, in some cases, closing all credit card accounts.
Before putting your home at risk to get out of debt, consider the alternative possibilities for debt relief solutions, debt settlement and credit counseling, that will give you control of your finances with the added benefit of possibly settling your debts for less than you owe.