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Debt consolidation - Is a home equity loan necessary?
Debt consolidation is often touted as a simple, effortless solution for people whose financial problems have gotten out of hand. It is one solution, but not the only one. Once dilemma faced by many people is that debt consolidation requires borrowing more money. How can you borrow more money if you are already tapped out? Is it possible to get a consolidation loan without putting your house at risk with a home equity loan? What if you don’t have a house?
Read on.
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Debt consolidation can be done without a home
Debt consolidation shouldn’t be the first step you take when you find yourself in financial trouble; it should be one of the last, followed only by declaring bankruptcy. While debt consolidation is advertised as a quick solution to money problems, it comes with troubles of its own:
- By clearing off your debts, you may find yourself vulnerable to overusing your credit cards again, making a situation that’s already bad even worse.
- Consolidation loans through agencies may come with hefty fees and perhaps even a not-so-great interest rate.
- Taking out a home equity loan to consolidate your debt could put your house at risk if you fail to pay.
It’s possible to work around these problems, but it can be difficult, particularly if you don’t have a house. The easiest way to combine existing debts is to take out a home equity loan. They are inexpensive when compared with other types of loans, and the interest is tax deductible.
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If you don’t own a home, you can still find financing to combine your debts into one manageable one. There are several choices available to you:
- A credit card loan - It’s possible to borrow from a credit card if necessary. Many companies offer temporary, low-interest loans for balance transfers if you open a new account and move an existing balance over from an old one. This can be tricky; failing to heed the terms of service by making a late payment could cause your interest rate to skyrocket, which will make a bad situation worse.
- An unsecured personal loan - Not likely for many borrowers, but you might be able to get an unsecured loan from a bank or a credit union, particularly if you can find a friend or relative who is willing to cosign the loan. Be aware that if you fail to pay, your cosigner will be legally responsible for paying back your debts. You don’t want to lose friends or relatives over a loan.
- Consolidation agency - There are professionals who can help you with your financial troubles. Debt consolidation agencies can help you create a management plan that will allow you to pay off your debts. They can also negotiate with your creditors to possibly waive fees and reduce interest. These are often for-profit services; you will have to pay them a fee to use them. On the other hand, it may be your only solution if you cannot find other sources of funding.
Getting out of financial trouble can be a difficult task. There are many ways to do it, and it is possible to do so even if you don’t’ have a house.
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