Today I’m going to give you a couple of tips to look into for consolidating your debt.  Of all the options I am going to show you I will give you the ups and downs about doing these options.  Some may not be for you others will.  In the end it’s all up to you.

Mortgage Consolidation

Mortgage debt consolidation is the process were you refinance you mortgage and in the process stuff other debts like your car loans, credit card debt, and even personal loans inside this loan.  There are a couple of reasons this is a great option.  First off, it will create a higher loan amount which in turn will mean that you will pay more interest.

The benefit of this is that you don’t have to pay taxes on any interest you pay on your home loan, as result giving you more back at tax time.  Another benefit is you will have a lower interest rate in most cases.  Considering the rates that credit cards can have, mortgages will usually run in the 5% to 6% range.  To boot these rates are usually fixed and won’t flex on you like a credit card.

However there is also a negative issue with doing this as well.  The first is that it could result in you maxing out your home LTV (Loan To Value).  Meaning you would have no equity left in your home.  The reason this not so good is because it could result in you possibly ending up in debt all over again except this time you would have no place to consolidate the debt again.

Even worse some loans will allow you to add up to 125% of the home’s value.  The down side to this is if you would ever want to sell your home you would have to pay off the 25% portion you are over on your home loan before you could sell.

This can also be a bad idea considering your payment might jump up as well after refinancing.  In fact it may seem alright at first to accept a higher payment but if things would happen to get tight with money you may have to make some sacrifices or even worse your home could go into foreclosure.

Finally, the thing you need to realize with this option is that even though you would consolidate your debt into your home mortgage doesn’t mean you would have any less to owe.  You may be able to cut the interest rates at best but the principle amount would still be due.

Credit Card Consolidation

The next option is a credit card debt consolidation option.  This option is similar to the last option with some small differences.  First off, the debt is not consolidated to a secure debt like your home mortgage but rather an unsecured debt like your credit card.

However there are some good points to this though.  First, to do this there will be no refinance fees unlike the mortgage consolidation option I just talked about.  In the last option to refinance you’re looking at $3000 to $3500 in fees whereas with credit cards you will only have to pay a transfer fee.  This will depend on the credit card you have, in fact some cards won’t even have a transfer for the first 6 to 12 months allowing to transfer and pay off the debt before the interest kicks in.

On the flip side though, this could be disastrous if not done right.  If your cards would happen to get stacked full of debt you could be paying in the 10% to 15% range in interest and if you started missing payments you could be paying in the 28% to 33% range or higher.

To throw another log on the fire if things got really bad you could even end up transferring balances between cards just to make your payments and basically ending up robbing Peter to pay off Paul to get by.  I’ve known people in this kind of situation personally and it can get pretty ugly.

However if this is done properly and you can stay focused  on the real goal to pay off the debt before the interest kicks in you could save yourself tons of time and interest payments.

Debt Settlement Consolidation

Finally, the last debt consolidation option is to consolidate with a debt negotiation company.  In this situation theirs usually two options here.  The first one is a debt counseling option were someone will work with you by combining your debts all into one payment and help you pay it all including interest.

The second option is to enter a debt settlement option were someone will work with you to cut down debts by negotiating you a lower balance and combine those debts into one single payment.  The benefits to this are that you end up paying less back than what you really owed in the first place.  This will also in most cases cut down the interest owed as well.

However these companies are not perfect one thing I’ve noticed as a big down side to using these types of companies is that once you give them control of your money they can decide how they want to pay off your debt.  Doing this also can put some serious negative marks on your credit score as well.

You’re Turn

Now it’s your turn, are any of these debt consolidation options something you would like to try?  If so make sure you look at all the options and risk before you decide.  Also before do anything call some of these companies and talk to them about your situation.

For example, let’s say you want to consolidate debt into your home mortgage.  Talk to several different lenders and see what kind of rates they would charge and what kind of payment you would end up with.

Finally, feel free to leave a comment and share how your situation turned out by trying one of these options.