Debt Consolidation - Borrowing against Home Equity to Pay off Debts

Homeowners who did not sell during the recent rise in real estate prices can still take advantage of the bullish housing market trend by borrowing against the increased value of the equity in their properties. Banks are usually eager to provide debt consolidation loans backed by home ownership, for two reasons:

• Those who consolidate debt are viewed as responsible borrowers with good financial discipline.

• Increased equity in your home is not only a testament to solid financial planning, it's also one of the best forms of collateral for those wanting a loan or line of credit for debt consolidation.

By consolidating or paring down debt, you can immediately improve your credit rating, because reporting agencies give improved scores to those who pay off high-interest loans and bad debts. Since it's possible to save money in the process, this kind of planning lets you have your cake and eat it too.

Shrink your expenses and fatten your piggy bank

If you have credit cards with double-digit interest rates, and you pay off that balance with a single-digit debt consolidation loan, you immediately save the difference in your monthly interest payment. Reduce a 16 percent rate to an 8 percent rate, for instance, and you automatically slash your indebtedness significantly. Viewed another way, you could say that you just gave yourself an 8 percent gift of interest savings.

Whether you view the glass as half empty (you still owe money, but your interest rate is only half as much) or half full (you just increased your interest savings by 50 percent each month through a single transaction), you can make leaps and bounds in terms of reducing your monthly obligations. By any definition, this kind of consolidation is a brilliant move.

Other possible repayment perks

When you borrow against the value of your home, you may qualify for special tax breaks. Speak to your financial advisor, and you may discover that you can go a long distance toward reducing your debt without ever leaving the comfort of your home sweet home.

By MortgageLoan.com