Debt Consolidation Counseling Clarifies The Trade-offs

2007-03-08 10:33:40

( Financial )



When talking of debt consolidation, you mean the conversion of your short-term debt into a home mortgage loan. This is a decision you have to weigh carefully. Debt consolidation counseling can help you think through the issues in this decision.

Debt consolidation counseling will underline the advantage of reducing interest expenses. Mortgage interest is usually lower than short term debt interest, and is tax-deductible. So the debt counselor may consider debt consolidation as one strategy.

However, debt consolidation counseling will emphasize that consolidation will convert unsecured debt into secured debt, with your home as collateral. If you cannot pay unsecured debt, you lose your good credit but you don’t lose your home. But by increasing the amount of liens against your home, you increase the risk of losing it.

Debt consolidation counseling will also stress the fact that debt consolidation can sometimes result in the mortgage amount exceeding the value of your property. You will lose your mobility in this situation. If you have to sell the house, the money from selling your house will not be enough to pay off the mortgage. And if you have to move elsewhere for better opportunities, you will not be able to do so unless you raise enough money to settle the mortgage and to cover your moving expenses.

Debt counseling can help you explore options on repayment strategies for your unsecured debt. If debt consolidation is really necessary, debt counseling services can help you prepare your home mortgage loan proposal and assist you in getting it processed by your lender.

If your lender approves, your monthly payments will surely be lower. Your debt counselor will advise you not to interpret this as a license to run up more unsecured debt. In a few years, you may have to consolidate debts again. That would put your house at greater risk of being lost.


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