The ever increasing cost of living, higher prices on all of our necessities such as food and gas, is making it difficult for many people to keep their head above water financially. Everyone is trying to make necessary adjustments and adjusting their spending habits but sometimes it is just not enough. You still come up short. Debt consolidation has become the solution for many, and some homeowners have decided to take advantage of the equity in their home and obtain a home equity loan to consolidate their debt. All loans have their risks and benefits. A home equity loan is not the exception, but also carries a unique risk.

It is true that by consolidating with a home equity loan you can save a lot of money each month. Rather than having several payments you are reduced to one payment a month and generally at a much lower interest rate. Lending institutions flood people with propaganda advertising these advantages as the solution to all your financial problems.

One thing that the lenders fail to emphasize in their advertisements is that these home equity loans are secured by your house so by taking these loans you are putting your home on the line.

That means that you could be taking debt that at present is not secured by any assets, such as credit card debts or medical bills, and tying them into your home. Since this puts your home at risk this is a very serious decision that should be considered carefully.

A wise consumer considers things beyond what the lending institutions tell them. It is to your benefit to think about what could happen. For example, let’s consider what could happen if you are able to only pay off a portion of your debt with a home equity loan.

With credit card bills, medical bills, or other expenses, it can be difficult to pay and may have a higher interest rate. If you default on the payments it can have a negative affect on your credit. However, it does not put you at risk of loosing your home.

A home equity loan does not eliminate debt. It still has to be paid, just in a different form. There could still be months when your budget is tight and it could be difficult to make those payments. Now your home is at risk.

Consolidating your debt with a home equity loan can be very helpful. However, since a home equity loan involves putting a valuable asset, your home, at risk it should be considered very carefully.


By: W. M. Blake

Tags: Advertisements, Assets, Benefit, Credit Card Bills, Credit Card Debts, Debt Consolidation, Flood, Head Above Water, Home Equity Loan, Home Equity Loans, Interest Rate, Lenders, Lending Institutions, Medical Bills, Necessary Adjustments, Necessities, Propaganda, Serious Decision, Spending Habits, Wise Consumer