Escape Route? Debt Consolidation May Be It!
You are in financial straits, right? Hold everything. There's a way out. It's not the end of the world and maybe, just maybe there's an escape route for you to take to extricate yourself. What do you know about debt consolidation loans? What type of debt consolidation are we talking about? If you have an unencumbered asset (one that hasn't already been put up as collateral for a previous loan) then we'll look at a secured loan.
An unsecured loan is typically a credit card or similar. If you're late on a payment, a lender has little leverage over you and your assets are relatively safe from seizure (foreclosure). Secured loans (usually in some form of mortgage) means that in the event of non performance by you the lender has the legal right to take possession of the asset (house, car, etc).
If you own a home, your debt consolidation loan will be either a home mortgage refinance loan or a home equity loan. A home equity debt consolidation loan normally has a higher interest rate than a first mortgage refinance debt consolidation loan. Before you get any form of debt consolidation loan, sit down with a good mortgage or debt calculator program. You can find one on all the better Internet loan sites.
Assuming that you will refinancing over a fairly long period, 10, 15 or 30 years, how much is that debt going to cost you? How long will it take you to pay off your debts at the rate being quoted? What is the interest rate on the loan? Having laid it all out, some kind of mortgage-based debt consolidation loan sounds good. Now, do your due diligence and pick two or three of reputable lenders and get a rate and terms comparison. Don't rush this. You are going to be stuck with a long period of repayment and a lot of interest cost over the life of the loan
Don't borrow more than you need for your debt consolidation loan. Keep the repayment amount within your budget. But don't fret too much over what may happen if you're late on one mortgage payment. Contrary to popular opinion, if you miss one mortgage payment, most mortgage lenders will not commence foreclosure proceedings. Even in states where foreclosure is, relatively, easy, it is still a costly process and is something lenders will try to avoid at all costs. Most lenders will entertain some form of plan to repay a loan over a changed repayment period. Lenders want cash not real estate holdings.
Many adjustable rate debt consolidation loans are fixed to high benchmarks. Best not to enter this kind of situation unless you are very rate savvy and tuned in to the vagaries of the financial markets.
If your investigation concludes a debt consolidation loan is called for, make sure you don't borrow to cover your current situation with credit card or other high rate debt only to turn around and get in the same mess all over again. Cut up those credit cards and do it the same day you sign the consolidation loan papers.