Debt Consolidation: Are Home Equity Loans the Solution to Get Out of Debt?

Debt consolidation provides consumers with an opportunity to roll all outstanding debts into one loan. Although debt consolidation loans are generally reserved for homeowners, there are other options available for people who do not own real estate. These options include debt settlement, credit counseling and budgeting. Additionally, some lending institutions will provide debt consolidation loans to individuals with sufficient credit ratings or those who have a credit-worthy co-signer.

The majority of debt consolidation loans are actually home equity loans. Lenders provide homeowners with a second mortgage based on the amount of equity they have accrued on their property. This type of financing can help debtors pay off credit cards, personal and student loans, and various types of unsecured debt.

Home equity loans are not without risk. The most substantial risk stems from using equity in your home as collateral. If you are unable to make payments on the home equity loan, the lender can initiate foreclosure proceedings. Additionally, by consolidating debts into one loan, repayment terms are extended and increase the amount of time required to pay off debts.

With today's economic crisis, debt consolidation loans may soon become impossible to obtain. Experts predict the cost of obtaining credit may double or even triple. Considering millions of Americans are already facing financial ruin, a large percentage of homeowners will not qualify for home equity loans.

The good news is other debt consolidation options still exist. One of the most beneficial is credit counseling. Obtaining credit counseling through an approved agency can help debtors obtain a better grasp on their finances. Credit counselors provide financial education and can assist in negotiating outstanding debts.

Reputable credit counseling agencies are well-connected within the credit industry. In many instances, they can help debtors obtain lower interest rates, eliminate late fees, negotiate balances and re-age past due accounts to improve the debtor's credit rating.

Debt settlement is quickly becoming a popular alternative for debt consolidation. The primary objective is to negotiate with creditors to pay less than is owed. In some instances, debt settlement can be achieved by dealing directly with creditors and offering an upfront cash payment. Other times, the services of a debt settlement company will be required.

Also known as debt negotiation or debt arbitration, debt settlement can reduce outstanding debt balances as much as 50-percent. When using a debt settlement company, it is imperative to engage in due diligence to ensure you are working with a reputable organization. Beware of companies who charge outlandish startup or monthly maintenance fees.

The Internet provides a wealth of information on debt consolidation techniques. An abundance of forms, creditor negotiation letters and articles are available online for free. While it takes time and patience, anyone who has the desire to become debt-free can do so.

Take time to become educated about the various debt consolidation options available. Create a list of your income, expenses and outstanding debts. Consult with a credit counselor or financial advisor. Conduct research online or visit your local library for debt management and personal finance books. Then, create a plan to determine which type of debt consolidation plan will help you achieve the results you desire.