If you are considering consolidating your credit cards and related debt into another mortgage, you might want to think twice. Experts say that although credit card debt may be addressed by debt consolidation mortgages, the terms have become far more conservative in recent years. Washington residents should know that lenders are now requiring homeowners to maintain as much as 20 percent of the equity in their homes before cashing out the mortgage.
What are debt consolidation mortgages used for?
Financial experts say that individuals who have a high amount of equity in their homes can reduce their credit card payments, along with student loans and even some personal loans. In one instance, a consumer who had been the victim of a natural disaster was able to cash out a significant amount of the equity in his home, paying off many credit cards and reducing his monthly payments by more than $1,500.
Do debt consolidation mortgages fix underlying problems?
Gurus say that many consumers who find themselves in financial difficulties before using a consolidation loan may put themselves right back in the same situation if they do not receive specific guidance. Further, those who are seeking larger versions of this loan generally need a credit score of 700 or higher, which can be difficult for those who are already financially strapped.
Is the debt consolidation option right for you?
Only you and your financial planner or legal team can make that determination. In many cases, financial challenges related to consumer debt may need to be addressed through personal bankruptcy or another method. Every person's financial situation is different, so it is important to take the time to fully evaluate your options before making a decision.
Source: Bankrate.com, "Debt consolidation mortgage gets an update" Polyana da Costa, Sep. 16, 2014