Using your home to consolidate your debt
While there are various ways that you can obtain debt consolidation one of the most popular ways to debt consolidation is to obtain a loan by mortgaging your home equity as collateral. Your home equity is your share in the ownership of your property. This is obtained by subtracting your debt payment from your total amount of loan. When mortgaging the home equity, its value will be calculated in terms of the present market value of your home. Borrowers should understand however that since your home equity is your share in the value of your home, it is your home which is mortgaged to secure the home equity loan. This is generally done in two different ways: one is the simple home equity loan; the other is the home equity line of credit or HELOC. Both of these types of loans are considered as second mortgages. The major difference between the home mortgage and home equity debt consolidation loan is that unlike the home mortgage, the equity loan is spread over a shorter loan term. While the home mortgage can be spread over a span of 30 years, the home equity loan repayment is usually spread over half that period or even as less as five years.

Benefits of debt consolidation
Debt consolidation can be a great solution to your debt problem. While you should understand that the overall payment liability calculated over the long loan term will be much higher than your existing situation this is often the only alternative to a deteriorating debt problem. This difficulty can be converted into a productive business opportunity. This is because the reduced monthly repayments of your debt consolidation loan can provide a breathing space of control over the multitude of debts. If a borrower chooses they can then further pay off their loan liability by the savings accrued through reduced monthly repayment installments. Alternatively, if the borrower is consolidating business debt they can then generate some more income through productive business investment.

Debt consolidation can also provide a means to free up money that can be used in other more productive ways. Some borrowers have chosen to use the savings they have from debt consolidation to fix their homes or even rental properties. They can then generate income from the sale or rental of properties. Home rent income far outweighs the interest rates and usually increases along with inflation. They are the regular means of income and can be used to pay off the debt consolidation loans or meet the contingent home expenses.

Borrowers should understand that debt consolidation is not an embarrassment but a positive, smart and healthy approach to overcoming ever mounting high interest rate debt liabilities. Debt consolidation can be a once for all time solution to your debt mess. Borrowers who choose debt consolidation are urged to keep in mind to control future income and expenditures in a budget. Those who choose this option need to keep a close watch over their outgoings and save for the future contingencies also.

Factors to consider
Before applying for a debt consolidation loan, it is advisable to go for extensive comparison shopping to get the best bargain. The best way is to do a search on the Internet. A quick browse on the net and you will come across many lenders offering competitive rates of interest. It should, however, be stressed that the interest rate (though a primary consideration), is not the only one aspect of your loan. There are numerous other expenses that can apply such as the application fees, evaluation fees, closing fees, administrative costs, insurance costs and consultation fees that you must consider. These are the upfront costs which can vary from lender to lender and make a huge difference in your overall repayment liability. You will need to find a plan which fits best into your individual needs. Another thing borrowers should consider heavily regarding debt consolidation is whether or not they can aggressively start paying off their debt via debt consolidation. It is important to remember that debt consolidation does not reduce your debt; it just helps it be more manageable. Borrowers need to analyze their finances to see if they can truly start paying off their debt. You should critically see where you can cut back on your expenses. Financial experts stress that you are going to have to make some personal sacrifices if you want to get out of debt. The bottom line is that even after you analyze your finances and you just can not seem to set aside enough each month to significantly pay down your debt, debt consolidation might not be the solution for you.

The reality of debt consolidation
While debt consolidation may seem like the magic solution to all of your debt problems there are thing that every prospective borrowers should be aware of. Some of these are:

• Debt consolidation loans are hard to get. One of the biggest myths about debt-consolidation loans is that they are easy to get. The reality is that if you really need a loan, it's probably because you have already missed a few payments and your credit history has some dings. It is important to keep in mind that if you are a credit risk, the debt consolidator may entice you with promises of an easy-does-it loan, and then end up charging you higher interest rates than you are paying. The bottom line is your monthly payment may be lower with one of these loans, but you will end up paying more.


• Be wary of debt consolidators who promise to take care of everything. This is strictly a fairy godmother fantasy. Many debt consolidators lure in their clients with the promise that they will negotiate lower interest rates, reduce your monthly payments and all you have to do is make one easy payment. In reality, many debt consolidators will build in a fee as part of the monthly payment you make to them. It's usually is about 10% of the payment (i.e. about $40 on a $400 monthly payment). They will pass along your payments to the creditor (some debit directly from your checking account) and then get back a 10% to 15% slice that the relieved creditor is only too happy to rebate to the consolidator. You need to ask yourself if it is really worth paying someone else to do what you can do on your own. There is also another risk that borrowers should be aware of: some consolidators have been known, in some cases, to make late payments or even miss payments, thus worsening your plight (and your credit record). The warning here is that if you choose to go with a debt consolidation company do lots of research before signing on the bottom line.


• Beware of the balance transfer trap. Many borrowers look at their credit cards as a means of debt consolidation. It is important however to understand that while low-interest balance-transfer cards are a dime a dozen these days, you need to understand that those rates only last a few months and then you have to switch cards again. The danger in this is that at some point all this activity begins to show up on your credit report, and you start to look like a bad risk. Then if you do get turned down you could be left holding the high-interest card you were hoping to dump.