Various secured debt consolidation loans have been used by many consumers as a way to erase personal debts, particularly when a poor credit score may result in the inability of a consumer to use a traditional consolidation loan as a way to find more affordable monthly payments and debt relief options in their personal financial life. However, there have been options that homeowners have used through refinancing as a way to consolidate debts, but this form of secured debt consolidation is usually one that requires a homeowner to carefully review their financial situation as, in many cases, there may be problems that arise if sustained repayment is not possible.
When it comes to using secured loans as a way to consolidate debt, homeowners and bad credit borrowers are usually in very different positions in terms of how they should implement these secured debt consolidation opportunities, as methods for homeowners to consolidate their debts through refinancing will greatly differ from a consumer that simply puts up some form of collateral in order to acquire a personal loan. Refinancing, like cash-out refinancing for homeowners, has been one option over the past months that homeowners have used as a way to consolidate multiple debt obligations onto their home loan, which usually comes at a lower interest rate.
Homeowners who may use their equity through either a home equity line of credit or cash-out refinancing will essentially be consolidating debt by tacking it onto their mortgage, thus increasing the overall amount they owe on their home loan. When high-interest debts through credit cards or personal loans are problematic, many homeowners feel that by putting this debt on their mortgage can be more affordable due to the fact that their mortgage must be paid monthly and, again, can come at a lower interest rate.
Yet, what advisors have often cautioned homeowners about, concerning this form of secured debt consolidation, is the fact that they will be having to pay a higher amount on their mortgage and failure to meet this higher mortgage amount or any problems with affordability that may arise could result in the loss of a homeowner’s property, and since secured debt consolidation has usually been linked with options for bad credit borrowers, homeowners who may not have a good credit score are unlikely to find an affordable opportunity or advantageous refinancing option. Essentially, a homeowner with a bad credit score will unlikely be able to refinance for a lower mortgage rate or get an affordable rate on a home equity loan, which could negate any benefits of debt consolidation.
The good news is there have been some homeowners who are able to take advantage of low interest rates that are currently available and consolidate their debts, which could allow them to only focus a great deal of their finances towards their mortgage payment and avoid excessive cost related to high interest debts in other areas. However, consumers may want to carefully review their situation to make sure that this form of debt consolidation through refinancing will be affordable and helpful for their particular predicament, as some counselors worry that homeowners who may need a debt consolidation loan could have implemented poor financial practices that may arise once they have consolidated unsecured debts onto their mortgage. While using a secured debt consolidation loan through the use of equity for a homeowner has been one option, credit counseling, an unsecured debt consolidation loan, or simple budgeting and repayment practices can all be used as alternatives to secured debt consolidation through refinancing and homeowners have been prompted to research these options as well before choosing the best path for their financial position when it comes to erasing personal debts.