Is debt consolidation the answer to your financial struggle? If you are like a lot of other people, you have credit card debt that is eating into your quality of life. You might spend a good part of your paycheck on your credit card balances.
You no doubt have heard about consolidating your credit card debt into one easy payment that will save you money and reduce your credit card burden. But before you go out and try to consolidate, you need to understand the principle involved. You need to understand how lenders view consolidation as far as risk is concerned.
The reason credit card interest is high compared to mortgage interest rates, is that lenders consider credit card lending riskier. That is, the credit card loan is an unsecured loan. There is no collateral to secure the loan.
This is an unsecured loan because if you use your credit card to buy a vacation to Hawaii, or a pair of shoes, or tickets to the game, the lender cannot repossess and sell something to get their money back. So the interest rate is high to make up for those who do default on their loans leaving the lender out the money they loaned.
If no one defaulted on their credit cards, the lenders might charge a lower interest rate. But they probably would keep the rates high, because they like making a lot of money on their loans.
But mortgage rates of interest are lower because there is less risk of the lender losing its investment. If the home buyer defaults on the loan, the bank can sell the land and make back its money. Real property for the most part, increases in value, so that the bank will be able to sell the property and recoup their loan.
So when you consolidate your credit card debt, you put together all of your debt and take a loan out on your home and use your home equity to pay off the debt and the money you borrow is now secured by your home so you will have a lower interest rate. Further, the payments on your home loan are tax deductible. Find out if debt consolidation is right for you.
Thank you for reading our Helpnets article on Debt Consolidation in your search for help with Debt Consolidation online. Visit Helpnets.com today for all your online help needs.
Popularity: unranked [?]
