Free Article: Debt Consolidation

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Debt Consolidation Planning
By Myles Johnstone

Deciding to get out of debt is admirable and the right decision for most people as debt can really slow people down. It can rob one of peace of mind by dwelling on it. Debt consolidation is a great starting plan for reducing debt. It isn't the final step because the customer still has to pay off everything. The difference is it is a lower monthly bill and it leaves the customer with more cash than there was before. It also aids in the help of rebuilding credit. Being able to lump all bills together and only make one payment is great.

There are ways to consolidate debts without owning a home, but by far the easiest way to debt consolidation is by using the customer's house as collateral. This is easily done, and will give most homeowners some breathing room that they didn't have before. There are terms and rates that need to be agreed upon like anything else. Most financial lenders will allow a little haggling room on interest rate. The amount of loan depends on the total addition of all debts, and the amount of equity in the customer's house. Most lenders will only lend up to 80 per cent of ones house value. This is because banks don't want people to default. This leaves equity in the home even after the loan.

Debt Consolidation Mistakes

As a homeowner, one needs to understand all of the specific details of the loan. Some lenders add a clause that will make one pay extra if they refinance before a certain number of years. Also, there are lenders that will allow a debt consolidation loan of up to 125 per cent. This means that your home equity is in the negative by 25 per cent. If the customer wants to move, they won't be able to sell the home they own. Debt consolidation loans at this level are not recommended. Also, it is best to pay down debt so that the customer can regain equity in the house.

One should not use the equity in a house over and over. There will come a time when the customer is thinking about their children and what they want to leave them. Owing a bank a hefty amount for debt consolidation means that the children will have to pay off the loans against the house if they choose to keep it and that means that there will be no cash for the next generation.

About the Author
Myles Johnstone writes exclusively for finance related sites about such subjects as asset finance and commercial mortgages and other finance solutions.

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