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Debt Consolidation Options & Avenues for the Homeowner Staff - Mortgage Lenders Plus.com

There are several avenues to debt consolidation – or to broaden the category a little, to debt reorganization. There is an entire industry built up around debt consolidation advice. The participants include credit counseling firms, debt consolidation loan providers, second mortgage lenders – and, in the final instance, bankruptcy courts.

There are a few people for whom the best debt consolidation advice is bankruptcy. But that shouldn’t be the case for able bodied people who are willing to work at righting their financial ship. The first option we mentioned, credit counseling, can be a good choice if you find a reputable firm and if you are capable of following their debt consolidation advice. Most of these firms call themselves non-profit operations. For some it is an accurate description; for others a subterfuge.

The first process you’ll go through is preparation of a monthly and annual budget. For many of us with debt problems, it will be the first budget we prepare. A credit counselor will go through your budget with you and pare it to the essentials. Some credit counseling services will take a monthly check from you and pay your bills with it, ensuring that your credit debt is slowly being paid down. If there is no outlandish fee for this service and if personal counseling is involved, it should be a reliable company. Those that have fee structures and call themselves “non profit” agencies should be viewed with suspicion.

Professional help in organizing a debt repayment program is one option. The other is borrowing money to pay off – well, borrowed money. If that is the option you select, a change in spending habits is going to be mandatory and will have to be self-enforced. It is almost a cliché in debt consolidation advice choices to use home equity to refinance existing debt. Home equity loans are much cheaper than non-secured loans and the interest paid on them is tax deductible. On paper, a home equity loan seems like good debt consolidation advice every time.

It will surely lower your monthly expenses and may lower your overall costs for paying off the debt. But it will also extend the period of time for settling this debt for years, and that is assuming that no further debt is accrued. A plain debt consolidation loan that does not have the collateral of home equity is going to have a substantially higher interest rate. This type of loan will also ease the monthly pressures, but it will almost certainly increase the cost of retiring your debts.

To get a sense of comparative costs, take your credit score to www.myfico.com and see how much a home equity loan will cost you – one that will consolidate your debt. If you don’t have the home equity option, get three or four quotes from lenders who provide unsecured debt consolidation loans. Then visit the Mortgage Lenders Plus Debt Consolidation Calculator at: http://www.mortgage-lenders-plus.com/calculators_debtconsolidation.asp.