Bad Credit Home Equity Loan vs debt management

When a house gets in trouble financially, the first thought that comes to mind is to get a bad credit home equity loan. It is always a wise decision? It 'best to get a loan to get rid of those overdue bills or to contact a debt management consultant and work out a payment plan?

Home Equity Loans

When you are in serious financial difficulties, before deciding to apply for a bad credit home equity loan, consider the facts:

You can lose your home if you default on payments

The interest rate will be higher because of your credit

Your money will be tied to the loan and not available for other purposes

Your home equity is all you have left after your credit has gone down due to financial difficulties. If you bind him to pay overdue bills, which leaves you with nothing if anything happens you need to make substantial repairs to the house. The idea may sound good at first, but when you consider that paying the old bills will not remove it from your credit report for six or seven years after he paid them, can not be the best solution to the problem.

Debt Management

Unlike a loan of consolation, debt management does not cost you anything extra interest and a loan is not true. What happens is a debt counselor working with creditors to work out a payment plan that allows you to repay your debts. Very often they are also able to have the interest rate reduced or eliminated, something that is not done with a bad credit home equity loan. Because of the reduced interest rate, you can get your debts repaid more quickly than would be possible with a loan. Moreover, even the equity in your home in case something important should come from where you really need.

The effect on lending

Keep in mind that a bad credit home equity loan is a consumer loan, and will show on your credit report. In a sense, this is good because if you make payments on time, it gives you something positive to offset the negative. On the other hand, if you need to apply for an auto loan in the future, it will affect your income to debt ratio.

Because a debt management program is not a loan, does not affect the income to debt ratio. You repayment of historic debt, rather than creating new debt. Surely, the old debt is still on the credit until it is paid in full, instead of being marked as paid. The final decision is that the house, but from a purely economic point of view, debt management is the least expensive .......