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If you own your home and are current on your mortgage payments the lender may suggest that you do debt consolidation by borrowing against your home's equity. If you’re not familiar with the term equity, it's the difference between the value of your home and the amount of money you owe on it. Most lenders will be willing to loan you up to 80% of the equity you have in your home. This, too, will be a secured loan because it's secured by your house. But the interest that you pay on the loan will be tax-deductible – which is a nice side benefit.
Frequently Asked Questions About Debt Consolidation
Q. What consolidation companies are reputable?
A. There are a number of debt consolidation companies that are reputable. According to TopConsumerReviews.com, the three best are National Debt Relief, Curadebt and CareOne Debt Relief Services. All three of these companies work about the same way, which is that you pay a set amount of money each month until enough money has accumulated in your account to settle one of your debts. The debt consolidation company will then negotiate with your lender to get your debt reduced.
Q. Why get a debt consolidation loan?
A. A debt consolidation loan can be an easy step out of debt hell. If you owe a lot of money and are being harassed by your lenders, then getting a debt consolidation loan and paying them off should relieve you of a lot of worry and stress. Plus, you would then have just one payment to make a month and you could automate it.
Q. Are debt consolidation loans easy to get?
A. This will depend on your credit score. If you have a credit score of 800 or above, you should find it easy to get a debt consolidation loan. Conversely, if your score is in the dumps – in the 600 or below, you may find it tough to get a debt consolidation loan. This is an area where it would be good to have equity in your home so that you could try for a secured loan
Q. How does debt consolidation effect your credit?
A. The answer to this question will depend on which option you use for debt consolidation. There are five components that make up your credit score and the second most important is your credit utilization or how much credit you've used versus the amount you have available. If you were to get a personal loan to pay off your debts, then your credit utilization could go down so that your score would go up.
Q. What do debt consolidation companies do?
A. The main thing that debt consolidation companies do is negotiate with your creditors to get your unsecured debts reduced. For example, if you owed $7500 on a credit card the consolidation company might be able to get that cut down to $4000 or even better.