More often than previous years, we see families letting credit card debt get out of control. Like it or not, We live in a credit driven society, and to survive the pitfalls of revolving credit and economic cycles you need to create an attainable budget and follow through with your fiscal plans. Don’t let the bills and debt begin to mount. Bankruptcy and consumer credit counseling are good solutions for certain situations, but you should take certain precautions to prevent being put in that predicament.
Homeowners Should Consider a 2nd Mortgage to Consolidate Credit Card Debt Prior to Filing Bankruptcy or Consumer Credit Counseling
Homeowners have more viable options than consumers who don’t own property, so if you are fortunate enough to own a home, take advantage of the financing available that can help you lower second mortgage interest rates, and convert compounding interest into a simple interest home equity loan that can save you hundreds of dollars every month. According to mortgage broker John Haynes, “many homeowners don’t realize that they have a great solution to pay off the debts in their home.” Haynes continued, “people drive up and park their car into their biggest asset everyday.” For decades, borrowers have been taking out second mortgages for debt consolidation.
Take Advantage of Tax Deductions and Monthly Savings Realized with Fixed Rate Second Mortgages
- Bad credit home equity credit lines
- 100% combined loan to value.
- First Time Home-buyers OK
- All types of Credit.
- Must Have Stable Income and Employment
- Hard money home equity loans
- Low Rate Bill Consolidation
Income Documentation: Full Doc or No stated Income
Many second mortgage companies have has partnered with a home equity lenders to create loan programs specifically designed for consolidating debt that lower your monthly payments, and help you refinance revolving credit cards. Of course talking with consumer credit creditors can reduce your interest rates and help you reduce your lower your credit card expenses, but you should never take it upon yourself to pay less than the minimum for monthly payments.
Second Mortgage for Debt Consolidation vs. Consumer Credit Counseling
Managing multiple debts can be overwhelming, especially when dealing with high-interest rates and different due dates. Two popular options for tackling debt are taking out a second mortgage for debt consolidation and working with a consumer credit counseling service. Each option has its advantages and drawbacks, so it’s important to understand how they work and which may be better suited to your financial situation. Here’s a comparison of second mortgage for consolidating debt and consumer credit counseling for lower monthly debt payments to help you decide which approach is right for you.
What Is a Second Mortgage for Debt Consolidation?
A second mortgage allows homeowners to borrow against the equity in their home, typically through a home equity loan or a home equity line of credit (HELOC). The funds from this loan can be used to pay off high-interest debts like credit cards, personal loans, or medical bills, consolidating them into a single loan with a lower interest rate. This approach simplifies your finances by rolling multiple debts into one manageable payment, often at a lower rate than unsecured loans.
Pros of Home Equity Loan for Consolidating Debt:
- Lower Interest Rates: Since second mortgages are secured by your home, they usually have lower interest rates compared to credit cards or personal loans. Consider a home equity loan to consolidate credit card debt.
- Simplified Payments: Consolidating multiple debts into one loan reduces the complexity of managing various payments with different due dates and interest rates.
- Potential Tax Benefits: In some cases, the interest on a home equity loan may be tax-deductible if the funds are used for home improvements. Consult with a tax advisor for specific guidance.
Cons of Home Equity Loan for Consolidating Debt:
- Risk of Foreclosure: Since your home is collateral for the loan, failure to make payments can result in foreclosure.
- Fees and Closing Costs: Second mortgages come with fees and closing costs, which can increase the overall cost of consolidating your debt.
- Debt Remains: While your debt may be easier to manage, a second mortgage doesn’t reduce the total amount you owe.
What Is Consumer Credit Counseling?
Consumer credit counseling is a service offered by nonprofit organizations that help individuals manage their debt. A credit counselor will work with you to create a debt management plan (DMP), which involves negotiating with creditors to lower interest rates and consolidate your payments into one monthly amount. Unlike a second mortgage, this approach doesn’t involve taking out a new loan.
Pros of Consumer Credit Counseling:
- No New Loan Required: Credit counseling doesn’t require you to take out a second mortgage or borrow additional money, which means there’s no risk of losing your home.
- Lower Interest Rates: Counselors often negotiate with creditors to lower your interest rates and waive fees, making it easier to pay off your debt faster.
- Financial Education: Many credit counseling services offer budgeting advice and financial education to help prevent future debt problems.
Cons of Consumer Credit Counseling:
- Credit Impact: Participating in a DMP can negatively affect your credit score, as some creditors may close your accounts or report your enrollment to credit bureaus.
- Fees: While nonprofit credit counseling agencies offer free consultations, DMPs usually come with monthly fees.
- Limited Scope: Credit counseling is best for unsecured debts like credit cards and personal loans. If you have secured debt, like a mortgage or car loan, this option may not be as effective.
Which Debt Consolidation Option Is Right for You?
Choosing between a second mortgage for debt consolidation and consumer credit counseling depends on your specific financial situation. If you have significant equity in your home and can afford the risk, a second mortgage may offer a lower interest rate and the ability to simplify your debt. However, if you prefer not to risk your home and want help negotiating lower rates, consumer credit counseling might be the better choice.
Both options offer paths to financial stability, so evaluate your risk tolerance, overall debt load, and financial goals to determine which strategy will help you the most.
The article was written by Lynda Nelms