The first thing that you need to realize when considering a debt consolidation loan is that you are treating the symptoms and not the disease. You wouldnt be consolidating debt if your spending habits werent a problem. So taking out a loan to cure using credit is, in a way, more of the same poison unless you can make a lifestyle change at the same time. One of the best ways to prepare for researching a debt consolidation plan is by cutting up your credit cards.



Home Equity Debt Consolidation Loans





Nevertheless, it makes some sense to swap high interest debt for lower interest debt. If you are contemplating a home equity loan and taking advantage of low mortgage rates, the idea looks pretty good on paper. Some or all of the interest on a home equity loan or line of credit may be tax deductible, just as the loan on your house. It would be a grand idea, however, if you held the size of that loan to the amount of debt that you owe. Dont pull all your equity out because you can; its time to practice a little frugality. Keep in mind that you are taking on another mortgage payment and that if your credit problems resurface to the point where you have trouble making your second loan payments, you may lose your house.



If you are serious about controlling spending, a home equity loan is a better debt consolidation tool than a home equity line of credit. While there may be costs associated with the loan that arent there with the line of credit, you are better off not creating additional credit to draw on with the very same tool you are using to deal with your initial credit problem.



Standard Debt Consolidation Loans



There are debt consolidation loans that dont require a house as collateral. However if youre already showing heavy debt on your credit record, a debt consolidation loan is not going to be at the most favorable interest rate. Once again, it requires some work with the calculator to decide which option is better: paying off the existing creditors or taking on one large new creditor. If you have one creditor with sky high interest rates, consider the notion of paying that debt off as quickly as possible. If you can meet one short term goal like that, perhaps the debt consolidation loan wont be as attractive. Unlike a home equity loan, there is no tax break that comes with the interest on an unsecured debt consolidation loan.



Sometimes, debt consolidation companies can discount the amount of the loan. When the debtor is in danger of bankruptcy, the debt consolidator will sell the loan at a discount. With enough searching, perhaps you can find a debt consolidation loan provided by a lender who will pass along some of the savings. Consolidation can affect the ability of the debtor to discharge debts in bankruptcy, so be sure you understand the consequences of consolidating. If you decide to do it, once again the most important factor is changing your spending patterns and sticking to the loan payments, in order to avoid defaulting on your solution.