Credit Card Debt Essentials

Understanding Debt

Refinancing Your Home & Home Equity Lines of Credit.

Refinancing your home gives you a lump sum of money (a loan) where your home serves as collateral. Similarly, a home equity line is a form of revolving credit in which your home also serves as collateral. Because a house is conceivably a consumer's largest asset, many homeowners use these types of loans only for major items such as education or home improvements, and not for day-to-day expenses.

Many lenders offer home refinancing and home equity lines of credit. By using the equity in your home, you may qualify for a considerable amount of credit and/or a large loan. It is important to note, many lenders require a home owner have at least 20% or more equity in their home to apply for this type of credit and/or loan.

Before making the decision to refinance or take out a home equity line of credit you should weigh carefully the risks against the benefits. Consolidated's Debt Management Program may be able to dissolve your debt in 3 to 5 years, whereas you might be paying a secured loan off for 15 years or more. Remember, failure to repay the loan could mean the loss of your home.

Warning: Consolidated does not condone the use of equity to pay off unsecured debts!

Home Equity Line Costs

Many of the costs in arranging a home equity line of credit may resemble the charges you pay when you buy a home. For example:

There may be a fee for a property assessment (appraising the value of your home). An application fee, which may not be refundable if you are turned down for credit. Initial charges, such as one or more points (one point equals one percent of the credit limit). Other closing costs, including fees for attorneys, title search, mortgage preparation and filing, property, and title insurance, as well as taxes. Some plans even impose yearly membership or maintenance fees and transaction fees every time you draw on the credit line. You could find yourself paying hundreds of dollars to establish the plan. If you draw only a small sum of money against your credit line, charges and closing costs could substantially increase the cost of the funds borrowed.

Unsecured Loans

An unsecured debt consolidation loan places none of your possessions at risk, but the loan's interest rate may be significantly higher than your current outstanding bills. In the end, you may be paying double or triple the amount in interest of your original debts or get side tracked making payments for years longer.

Either type of debt consolidation loan only places you deeper in debt, complicating your financial difficulties, not solving them.

We get calls from people telling us that getting a debt consolidation loan was the final cause of their financial derailment. After they paid off their debts with the loan, it was not long before the credit card charges were run up again. Leaving them with both a consolidation loan payment and credit cards to repay. Many consumers who obtain consolidation loans get back in debt and return looking for yet another consolidation loan; never ending the cycle of debt and never rebuilding their equity. Americans of all education and income levels are falling into this trap.