Consolidating Debts Into The Home
Many consumers have gotten in over their heads when it comes to their debt. They may be considering debt settlement or using a home equity loan or mortgage refinance to consolidate debt. Anyone who is considering rolling their debts into their home should consider the risks involved before doing so.
When choosing this option, you need to keep in mind the possibility of foreclosure. You must make sure that once the consolidation occurs you will be able to make the monthly payment. If you have any doubts as to whether you will be able to afford your monthly payment, then you should choose another option. You also shouldn’t count on extra income that you haven’t begun earning to rationalize that you will be able to make your future mortgage payments. You should be conservative with your income in determining your ability to make your mortgage payments once the consolidation occurs.
When you consolidate your debts into your home, you are reducing your ability to file for bankruptcy should you need to choose that route in the future. Bankruptcy can come about for many different reasons that are impossible to predict. You may have a loss of income due to unemployment, sickness or death and numerous other things that could go wrong. Once you have consolidated your debts into your home, you must repay your mortgage which includes the unsecured debt that has been consolidated. Before choosing this option, you would be able to file bankruptcy against your unsecured debts and still keep you home. Also, after the consolidation, services like debt settlement and credit counseling are no longer available to you. Therefore, you should really consider all options before consolidating your debts. You wouldn’t want to lose your home because the consolidation of credit card and other debts made your mortgage payment too high.
Unfortunately, too many consumers who do choose to consolidate their unsecured debts into their mortgage payments find themselves in a similar situation a few years down the road. Debt consolidation through a home loan does not fix the source of the problem. Consumers usually continue overspending, charging up high debt on credit cards instead of using just cash for their purchases. They don’t learn to budget which leads them back to where they started. One must be determined to change their lifestyle by only buying what they can afford. Debt consolidation does require consumers to close all their credit card accounts, teaching them to live within their means.
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