How To Consolidate Your Debt Using A Home Equity Loan
Are you concerned about your growing volumes of debt? You might want to consider getting a home equity loan. If you still have relatively good credit and you own a significant amount of your home's equity, you can usually get a home equity loan to consolidate your other debts quite easily. This will help you resolve your debt as soon as possible by consolidating it under a lower interest rate.
Add Up Your Debt With The Help Of A Financial Planner
The first step of determining whether a home equity loan is even suitable to your plans is to consult with a financial planner to ensure that you have all of the relevant debt payment amounts. Your last statement is not an accurate representation of your full payoff amounts on your debts, especially if you have loans such as automobile loans. You will need to contact each of your creditors directly to find out how much your payoff amount is and then you will need to determine whether you have enough equity in your home to complete the payoff.
Request A Home Equity Consolidation Loan
You can't just request a home equity loan from your lender—you need to specify that it is a consolidation loan and send in all the relevant information regarding your debts. Why? Because your lender will be sending the money for the home equity loan directly to the creditors that you owe. Otherwise, your lender may see you with $40,000 in debt, requesting a $40,000 equity loan, for a total of $80,000 borrowed. By requesting a consolidation loan specifically, your lender knows that you are simply transferring your debt, for a total of $40,000 borrowed.
Complete The Loan Process
A debt consolidator can handle the majority of this process for you. The home equity money will be sent directly to your creditors and, in most cases, the creditors will then opt to close your accounts. You may be able to keep one or two emergency credit accounts. You will then immediately begin paying off your home equity loan rather than the other loans—but you should watch for your statements as they come in the following month to make sure that all of them have a $0 balance. Occasionally, a fee or interest may be tacked on after the payment that could bring your balance up again, and ignoring these statements could put your credit score in peril.
Of course, there are also some downsides to getting a home equity loan to consolidate your debt. When you use a home equity loan, you make it so that failing to repay your loan could result in the forfeiture of your property. If you're staring down the barrel of bankruptcy regardless, this may not be that big of a deal—but if you're otherwise in a firm financial situation, it might not be a good idea. Click here for more info.