Debt consolidation is when you use the equity in your home to pay off other outstanding debt, such as credit cards, personal loans etc.this can be done by refinancing your first mortgage or doing a second mortgage on your home.In 2006, because of increased minimum monthly payment amounts by credit card companies, debt consolidation will become a solution to many American familiys' finances.
Debt consolidation often gives you tax advantages. Consult your CPA to discuss the tax benefits.
There are several ways you can use the equity in your home to consolidate your debts. You can do a cash out refinance and use the cash to payoff your high interest rate debt. At times your mortgage payment may not increase at all if you have had your current mortgage for a long period of time or if your interest rate is high and you are able to reduce it with the new loan. Another way to consolidate your debt is to do a home equity line of credit or second mortgage.
Many people really don't relize that putting all the oustanding debt in to one loan can save you hundreds of dallors a month. It also can be a tax deduction now since you can write off the interest you pay on your mortgage.
One of the big advantages of refinancing your mortgage for debt consolidation is that in most cases you convert non tax deductable consumer debt interest into deductable mortgage interest. For precise tax benefits however you will need to consult a tax professional.
Even though tapping into the unused portion of the equity of a property is a good means to restructuring a homeowner's debt, using the proceeds from a Debt Consolidation mortgage to pay off other debts effectively turns those unsecured debts into one single debt that is secured by the property. While creditors of unsecured debts cannot foreclose on the homeowner's property, a mortgagee can. Therefore, homeowners who are deep in debt and have a history of mismanaging their finances should consult a licensed financial planner before getting a Debt Consolidation loan.
