Wednesday, February 25, 2009

Home Equity For Debt Consolidation - Is This the Best Solution For You

The United States is notorious for lots of debt and bad credit.I n fact,debt is such an enormous problem in America that it has been estimated that each citizen is born with 25000 dollars of debt. Fortunately there are debt consolidation programs and loans out there to help anyone in need of financial assistance.

There are so many program options available that choosing the one for you can be confusing. However, being a homeowner could be just what you need to pay off all your debt. Most banks offer Home Equity loans and you can use that money to do the debt consolidation.

It works this way: By paying you mortgage over time you own more and more of your house. Lets say you loan is for $100,000 and your house payment is 2000 dollars a month. We can expect that some time in the loan, around 1,500 dollars would be going to the balance. For arguments sake lets say you pay around 18,000 dollars a year toward paying off your loan. After 3 years you would have about $54000 worth of equity in your home. If your home hasn't lost value in appraisal you can borrow against that 54,000 less fees and pay all of your debts off once and for all.

If your home rises in value you get the increase in the appraisal as well as the 54000 dollars. When you get your home equity loan, you need to pay all your creditors in full thereby leaving you to pay only that loan each month. This needs to be paid to finish buying your home.

The monthly payment is usually quite reasonable and can be paid off in 10-15 years. You should also have the option to remortgage which is where you combine both you mortgage and you home equity payment into one bill. This would be ideal if interest rates were low or in time of recession.

The advantage to a home equity debt consolidation plan is that paying off your creditors completely has a more favorable effect than a regular debt consolidation where they close you accounts so you can't use them which damages you credit rating.

The best option for a homeowner to get out of debt quickly would be a home equity/debt consolidation loan. Then take the necessary steps to ensure that you never find yourself in that position financially again.

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