How does a Debt Consolidation Loan compare to Debt Settlement?
A debt consolidation loan is typically only available if you have a house with equity or other assets to put up as collateral for the loan. Almost no lending institutions will give you an unsecured credit card debt consolidation loan. It simply is not an option.
What is a Home Equity Debt Consolidation Loan?
A credit card debt consolidation loan, or any type of debt consolidation loan is one loan which pays off a combination of other loans or lines of credit. The debt consolidation loan typically has a lower interest rate than the other loans. The most common debt consolidation loan is the home equity loan, also called a second mortgage. Loans can be taken against equity in your home, if you own real estate with equity.
Pros of Debt Consolidation
The benefit of a debt consolidation loan is that you are left with one payment which is lower than the sum of the other payments. If you do have equity in your home, a credit card debt consolidation loan is certainly an option.
Cons of Debt Consolidation
The risk of a second mortgage is that you are replacing unsecured debt (i.e. credit cards) with secured debt (the new second mortgage). If you are unable to make the second mortgage payment, you risk losing your house in foreclosure, because you will not be able to extinguish this debt in bankruptcy. So, it is important to realistically look at your ability to pay a second mortgage.
The Optimal Candidate for a Debt Consolidation Loan
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Your credit is still good enough to get a reasonable interest rate.
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You have enough equity in your home to borrow the money to pay off your credit card debt (Most banks won't lend more than 80% of your home's value). We can combine a refinance and pull out enough money to settle your debts.
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You can afford your new second mortgage payments with relative ease. As a rule of thumb, after making both mortgage payments and any auto payments, you have at least $1000 left, plus $500 per additional person in your household.
