Debt Consolidation Loan
To be approved, you must have the ability to repay a larger home loan and also have an acceptable credit rating. Even if you do qualify, without debt settlement combined, your situation could likely get worse. Rather than helping you to reduce your debt through debt settlement, a consolidation loan may increase your debt burden. Here are some more facts that you may want to know about debt consolidation loans:
- You must qualify, which may be difficult given the recent mortgage reforms.
- It requires ownership of a home with considerable equity
- Closing costs are usually required upon closing or built into the interest rate
- Missing payments could cause you to lose your home
- You would pay back the entire balance of your credit cards, plus interest
- Payback could be 10-30 years or more depending on debt balance, type of loan, and your ability to pay
- You are paying off unsecured debts in favor of a new secured debt
- The debt consolidation loan reduces the equity available in your property for future use
Continue to Make the Minimum Payments or Don’t Pay Anything at All
- You could pay almost 50% of your original balance to your creditor in interest costs alone over the first 36 months. Your principal balance may barely be touched
- If your credit card interest rate is 25% or higher, it may be almost impossible to pay off your debt by making the minimum payments
- With a high credit card interest rate, it would most likely take you over 20 years to becomedebt free – and that’s if your balances don’t increase
- Until you pay off high balance debts, your ability to be extended credit becomes substantially more difficult.
If you have already stopped making payments to your credit cards or other creditors, you are negatively affecting your credit rating without reducing, settling or managing your debt successfully.