Debt Consolidation Home Equity Loans ? Advantages And Disadvantages

Getting a home equity loan, or second mortgage, for the sole intent of consolidating and ultimately eliminating unnecessary debts is a great plan. Many consumers are burdened with high credit card balances, consumer loans, etc. Reducing or paying off debts takes time. Furthermore, many do not have the disposable income to lessen credit card balances.

Owning a home places you at a huge advantage. Those who have built equity in their homes may acquire a home equity loan as a way to reduce debts. These loans are affordable, and serve a useful purpose. However, debt consolidation home equity loans have certain risks.

How Do Debt Consolidation Home Equity Loans Work?

The concept of debt consolidation home equity loans is simple. Home equity loans are approved based on your home?s equity. A home?s equity can be calculated by subtracting the amount owed from the home?s market value. Hence, if you owe $50,000 on a home worth $120,000, the equity totals $70,000.

Once the lending institution approves your loan request, and the money received, the funds are used to payoff creditors. Creditors may include high interest credit card balances, consumer loans, automobile loans, student loans, etc. Furthermore, debt consolidation can used to payoff past due utility bills and medical bills.

Debt consolidation loans are not free money. These loans have to be repaid within a reasonable timeframe. On average, home equity loans have short terms of seven, ten, or fifteen years ? sometimes less. Because home equity loans have fixed and lower rates, these loans are easier to payoff than credit cards.

Pros and Cons of Debt Consolidation Home Equity Loans

The major advantage of home equity loans is the ability to become debt free. However, home equity loans involve careful planning. Once credit cards and other loan balances are eliminated, closing credit accounts is a smart maneuver. This way, you avoid accumulating additional debts.

Sadly, some consumers repeat past credit mistakes. Along with paying a home equity loan, they acquire more credit card debt, which increasing their debts and payments. Excessive debt makes it difficult or impossible to maintain regular home equity loan payments. This will present another home equity loan danger ? inability to repay the loan. A huge disadvantage of debt consolidation home equity loans involves the risk of losing your home. Before accepting a loan, realistically analyze whether you can afford a second mortgage.

About the Author: View our recommended lenders for Home Equity Online Loans.

Tags:

What exactly occurs with a Debt Consolidation Loan?
Do you go thru a bank? A specialist type company? What type of fees? Do they knock down some of your balances? Do they send you a check & you...
What is better, debt consolidation loan, home refinance or home equity loan?
My husband and I want to pay off some credit card debt; which is the better option?...
Is a debt consolidation loan possible with OUT home equity?
My ex has the house. The only collaterol I have is some IRA’s that have double the value as my debt. What alternatives are out there? What do you suggest?...
If take out a debt consolidation loan secured through your home will that affect if we try to refinance mortg?
needing to consolidate credit card debt. but would like to in future refinance home soon. will it cause a problem with refinance if secure with home?...
Consolidation loan for more than the value of my home?
A financial institution has made an offer to combine all of my credit card debt (,000), my mortgage (0,000) and my second mortgage (,000) for a total loan value of...
What banks have money and are lending for home loans right now?
I have a FICO score of 725 so I’m thinking if I find the right bank I could still get a home loan even in this economy, but which banks...