Credit card Debt consolidation loan: My suggestions

What debt consolidation loan is? It is just a consumer loan that you use to make payment in other debts. In other word, its process likes home refinancing.

Most often use in debt consolidation is a home equity loan. I have noted that a home equity loan is different from home refinancing because your mortgage isn’t affected. So you can have cash to meet your debt payment such as credit card debt by home equity loan. Moreover, if your home has value says $200,000, but you have credit card debt amount $150,000. So $50,000 is yours (but in another form of debt). Now, lenders will give cash up to 1.25 times of your mortgage, so in this case you get $100,000 after you eliminate credit card debt of $150,000. But I advice you not to take advantage of this 1.25 times offer because it’s so risky to do that. In other way you can borrow 70-80 percent of your equity value to reduce your burden of debt. It’s up to you MAKE decision that suite to you.

This approach may have benefit if interest rate of your own debt (in this case is credit card debt) greater than your consolidate loan (home equity loan). In example, If credit card interest rates is 15 percent or more, and your home equity is 8 percent. You’re save money in 7 percent interest payments. Furthermore, you have benefit of tax-deductible in the interest on the home loan (credit card is not).

Now you may have a question in your mind, “Will this really my credit card debt relief?”
The first point, if you use a home equity loan consolidation, you’re discourage what you’ve accomplished in make payment of your mortgage. In my opinion, the mortgage debt is better than unsecured credit card debt. However, home equity loans can be more cost than refinancing mortgage, though, thus you have to make decision carefully.
The second point is some debt advice experts will say that you shouldn’t use a home equity loan for the short-term expenses like credit card debt. You will lose your house because of your credit card. I suggest that you will use a home equity consolidation only if you’re surely paying it in the future. A home equity loan is long-term debt. To do this you’re putting your important asset as a pawn.

The last, I suggest you to don’t borrow more than your home value. It’s more risky if you borrow excess home value. The reason is your home values don’t always rise. If the market can turn down, your home price is drop and hard to know when price is rise or drop.