Understanding debt consolidation

Borrowers who are having trouble paying their bills have more likely than not thought about debt consolidation and wondered if such a magical, seemingly simple solution could be the way out of financial hardship. Debt consolidation can be a very helpful tool, eliminating a variety of high interest rates and a complex web of creditors and creating a simplified plan to pay off debt. However, this magical option can still be risky, since as many Atlanta readers already know, there is no easy way out of mounting unpaid bills.

One tool that many people consider when they want to consolidate their debt is a home equity line of credit. For people who are dealing with high interest rates on credit cards, a home equity line could pay off those debts and transfer them to a line of credit with a lower interest rate. However, the interest rate is lower because unlike credit cards, home equity loans are secured by collateral. That means that if a borrower falls behind on payments again, they are subject to foreclosure.

This is why it is so important to be absolutely sure that it is possible to make payments on both the original mortgage and a home equity line as well as keeping up on regular financial obligations before going ahead with that type of debt consolidation method. No one wants to get into a situation where they are forced to forfeit some of their assets, but with the wrong debt consolidation tools that may wind up being the case. Instead, it can be helpful to consult with trusted debt management and bankruptcy specialists to find the best solution that will not put the family or the home at risk.

Source: KLTV, “Eight facts about debt consolidation” Andrew Housser, March 25, 2013

More information about debt consolidation as it compares to bankruptcy can be found on our website.