One of the many challenges facing American’s today is managing the unsecured debt that has people grappling to catch up. What makes it more alarming is that credit card companies charging high interest fees do not make it easer to pay off the debt.  On average, American’s are carrying $30,000 or more in unsecured debt. While there are some non for profit credit counseling  services and reputable debt consolidation companies another alternative would be obtaining a home equity loan to consolidate their debt. Thus reducing the total amount of interest paid and have only one bill at the3 end of the month.

For those who are property owners this is one option that is made available to them for having invested early on a home that has equity. What exactly is Equity? Equity is the appreciation value of the home since the original purchase date. In a good normal stable market it is very common to see the value of a home increment with time. If what you own on the mortgage of the home is $50,000 dollars and the total amount the house is currently worth on the market is $100,00 you can borrow up to $50,000. 

Home Equity Loan

You have two options in applying for this type of program, either a home equity loan also called second mortgage loan or a home equity line of credit:

Home equity loan allows you to take up one large sum of the total amount requesting to borrow, it usually has a fixed interest rate. This is useful  when you have an exact amount of money in mind for a specific purpose. This will most likely be the best method when looking into consolidating your debt. Make sure you have gathered all your unsecured debt statements and made an analysis of the total amount owed to various lenders and creditors. This information is vital if your looking to save money in the long run on interest. 

A Home equity line of credit on the other hand works similar to how a debt card works, in that there is a maximum allowed credit to be withdrawn and is usually charged by an adjustable interest rate. This would be useful if you there is an expense and a purpose for the money however the exact amount has not yet been determined. A house remodeling would be an example of the application of this method.

A good to excellent credit would be extremely beneficial to both qualify and to insure a low interest rate is applied to the loan amount.  Print a copy of your credit report so that you are already aware of where you currently are financially in the eyes of creditors. In the event your credit is not good consider putting of the loan for a minimum of six months while you make timely payments. Also consider looking for negative items on your report and have them cleared of your record.

Expect to bring with you

• Market value of your home
• Personal References
• Income statement sheets
• Proof of the total amount owned on the house

If you are paying high unsecured debt this might be a promising alternative to lower your payments, interest rates and consolidate your bills with one secured loan. Consider consulting with a financial planner and insure you can pay back the loan, otherwise you risk putting your home in jeopardy. 

If you are looking into alternatives for debt consolidation also invest time in creating a detail financial plan, including budgeting limits, what items can be taken away and what small life style changes can be implemented to avoid acquiring future debt.