Debt Consolidation Vs. Home Equity Loans

If you have been reading about debt consolidation, then you have probably found out that one of the best and most effective ways that you can do this yourself is by taking out a home equity loan on your house and using the value of your home to help you get your debts in one place and pay down your loan. This is not for everyone – if you do not own a home, or do not have much equity in your home yet, then this option might not be available to you. In that case, you will want to look into some of the other debt consolidation options available to you.

I have a house but no equity
This can be because you just bought the house, or because you have been dealing with a very slow market and an interest only loan, or for a couple of other reasons entirely. Suffice it to say, you own a home, you are in debt, and you don’t have home equity to fall back on. If you have owned your home for a while, but simply haven’t gained much in the way of equity, you may be able to refinance your loan for greater than the amount actually owed on the house. Use the extra money to pay down your debt, and be extra careful to make the biggest house payments that you possibly can in order to get that mortgage down a bit. This should not be considered a quick or normal fix, however once in a home loan will not likely get you in too deep.

Equity? I’m still renting!
If you do not have a home loan or even a home, then you are both better and worse off. You cannot be foreclosed upon, but you also do not have that extra resource to draw from. Instead, you should look into getting a personal loan from your bank, credit union, or other local lending institution. From there you can pay off your credit cards and other debts and then work on paying off the personal loan instead of paying off multiple loans at high interest rates. The rates for personal loans are not as good as home equity loan rates, however they can be ten or more points better than credit card rates in some cases, making it a no-brainer to switch over.

Another option that you might want to take into consideration is refinancing your car loan if you have one and add on the value of your debt. Be careful with this route, though, as your car might die long before you have finished making payments on it because of this. This loan is also going to be at a much lower interest rate than your typical credit card because the loan is secured with the collateral of your car.

Also be sure, no matter your situation, to call your credit card companies and ask them to reduce your APR. Most of them will oblige over the phone with little to no effort on your part, and any small balance that you choose to carry on those cards will incur less interest and make that much less impact on your financial situation. Every little bit helps.