And cons of consolidating debt
MORE: Calculate personal loan rates If you’ve ruled out other options, weighed the pros and cons of consolidating with home equity and determined it’s the viable path, then it’s a choice of a home equity loan or a HELOC.Home equity loans are a type of second mortgage based on the value of your home beyond what you owe on your primary mortgage.A homeowner with shaky finances shouldn’t move unsecured debt that can be erased in bankruptcy to secured debt that can’t. That’s the maximum time you’d be required to make payments toward Chapter 13 bankruptcy or a debt management plan — after which your debt would be fully retired.Chapter 7 bankruptcy would wipe out your debt immediately and get you on a path toward restoring your credit.Be sure to consult with a qualified attorney if you’re considering bankruptcy. Keep in mind the costs of taking out a loan in the first place.Although a debt management plan (DMP) is not a loan, it does combine all your unsecured credit card debts into a single monthly payment.To do this, many or all of the products featured here are from our partners. Because of these risks, Nerd Wallet recommends that you reserve home equity for emergencies.Consider these pros and cons: Pros A homeowner with good credit is likely to have better options that don’t risk the house.
Debt management plans that are created through a nonprofit credit counseling agency must be viable for the consumer – meaning you have to be able to afford the payments each month.
Options for smaller debt loads that don’t put your home at risk include: 0% balance transfer card: For people with good or excellent credit, issuers offer balance transfer credit cards with introductory no-interest periods from six months to two years.
This is usually the cheapest option for those who qualify.
You pay interest only on the credit you use, often at rates several percentage points lower than average rates on credit cards.
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Bankruptcy is a perfectly acceptable option, but your options may be somewhat limited if your debts have been consolidated into a home equity loan or mortgage.