There are many opinions and much controversy as to the feasibility of taking out a loan against the equity in your home (home equity or debt consolidation loan) to pay off unsecured debt, i.e., credit cards, lines of credit, loans, medical bills, etc.
It has been my experience that most people take out home equity loans in an effort to lower interest rates on credit cards and make one monthly payment to one creditor, as opposed to making many monthly payments to many creditors.
Please be advised - it is not necessary to take out a loan and risk losing your home (if you default on the loan), just to lower interest rates and reduce your payments. This can be accomplished with Debt Paydown.
Why are 80% of home equity loan borrowers worse off five years after taking out the loan? They continue using their credit cards. It is only a matter of time before they again build up significant credit card debt with high interest rates, leaving them with the burden of monthly payments for the home equity loan and the credit cards.
If you are convinced that a home equity loan is your only alternative for managing your debt, considering my suggestions as follows will reduce your chances of being part of the 80% who end up unhappy with their decision.
Don’t take out a home equity loan unless . . .
1. You have a steady, secure income
2. You have an emergency fund or disability insurance
3. You replace your credit cards with debit cards
If you insist on moving forward with a home equity loan, please understand - you will need a high credit score in order to obtain the lowest interest rates. We can recommend companies who can assist you in raising your credit score in a short period of time.
We do not suggest a home equity loan if you live in Florida or Texas. It has been our experience that creditors in these states are generally amendable toward a settlement, which means that will accept less than the amount owed toward unsecured debt. Therefore, if you live in Florida or Texas, we recommend Debt Settlement.
NOTE: Creditors tell me that creditors in Florida and Texas are willing to negotiate debts since the laws in their states make it very difficult for them to garnish wages, lien property and levy bank accounts. For more information regarding the collection laws in your state, we suggest you consult a licensed attorney.
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