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 lenders charge a high interest rate on credit card debt compared to mortgage debt is because of the risk involved. The lender views credit card debt a high risk because if the borrower defaults on the debt there is no collateral to sell in order to get the money back.
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.
Interest rates are lower on home mortgages because if the borrower does default on his or her mortgage payments, the lender can foreclose and sell the house to recoup their loan. Even when there is a foreclosure crisis and lenders have a full inventory of foreclosed properties; lenders still can lend money at lower interest rates compared to credit card interest rates because the loan is secured by a house. Real property is an asset that generally increases in value.
So consolidating your debt will get you a better interest rate. And you will be able to write off the interest you pay on your annual taxes. So it might be a good choice for you. But make sure you understand all the facts before you sign onto a new loan. Debt consolidation means that you are placing your home as collateral for your credit card balances. You will get a better interest rate, but if you default on your new loan, you will lose your home.
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.
