When consumers consolidate debt they typically take out a home equity loan or home equity line of credit using their property to secure financing. As with most financial decisions there are pros and cons to consolidating outstanding debts into a real estate loan.

To consolidate debt using home equity, borrowers must qualify for a loan. Banks have tightened lending criteria since the mortgage meltdown. Additionally, property values have declined due to the massive influx of foreclosures. Qualifying isn\’t nearly as easy as it used to be.

Financial reports indicate lending restrictions won\’t ease for several months. This is not to say home consolidation loans aren\’t available, it is simply forewarning credit is substantially harder to obtain these days.

Home equity line of credit (HELOC) is another option for consolidating debt. HELOC loans are a line of credit that homeowners can access when needed. Interest is assessed only against funds withdrawn. Most banks assess adjustable interest rates with HELOC loans.

The line of credit is equal to or lesser than accrued home equity. Once homeowners repay funds, the payment amount is available for borrowing against. For example, homeowners obtain a $20,000 line of credit. They borrow $5,000 and repay $2500 plus interest within 60 days. They can re-borrow the $2,500 once payment is deposited into their account.

Some homeowners elect for cash-out refinancing when outstanding debts exceed $25,000. This option requires borrowers to qualify for a new mortgage loan. They borrow the full value of their property, pay off the outstanding balance of current mortgages, and obtain cash back for the difference.

Cash-out refinancing is best suited for homeowners with substantial home equity and outstanding debt. Borrowers should carefully calculate the true cost of refinancing and determine if they will be assessed closing costs for taking out the new loan.

Debt consolidation programs exist for those who do not own real estate. There are several different strategies and the type required depends on the level of debt. Affordable solutions include budgeting and credit counseling. Others are fee based such as debt settlement and personal bankruptcy.

Caution must be exercised when enrolling with debt settlement companies. Realize that creditors are not required by law to reduce outstanding balances. Many debt settlement companies advertise that they can slash debts by upwards of 60-percent, but none guarantee results.

Debt settlement companies typically assess startup and monthly maintenance fees. These can be as much as 50-percent as the amount of settled debt. Numerous debt settlement companies have been charged with consumer fraud, so those who choose this route should spend time investigating the company before entering into contract.

Credit counseling can be a good choice for many reasons. Many agencies use a sliding scale to assess fees based on debtors\’ earned income. Oftentimes, counselors can negotiate with creditors to reduce balances or interest rates. Counselors provide money management skills and can help debtors determine if debt consolidation is the smartest option.

The Internet is a good source for learning about the various ways to consolidate date. The recession has forced millions of Americans to review their personal finances. Being frugal is rapidly becoming a necessity.

Now is the perfect time to review household budgets and determine where to trim excess spending. Afterward, develop a plan to eliminate debt and be released from the financial ball-and-chains that bind you.

Author Bio: Author and investor, Simon Volkov presents an extensive personal finance library to help consumers improve money management skills. Topics include: strategies to consolidate debt, budgeting, how to pay off credit cards, home equity loans, and debt settlement. Learn more at www.SimonVolkov.com.

Category: Finances
Keywords: consolidate debt,debt settlement,home equity loan,credit counseling,budgeting,debt consolidation