Having been through a fairly tough financial period, many individuals are watching their spending and playing things cautiously. For some, they are already looking at alternatives to bankruptcy, hoping to save their credit history before they run into trouble. These are the individuals that are living on shoestring budgets while they keep their debts current.

One alternative to bankruptcy that is available is a home equity consolidation loan. These loans can represent good value, especially since the interest charged is often much lower than that being charged on their current debts – like credit card debts. There are pitfalls to home equity loans, however, and you should consider them seriously before taking that path.

The major pitfall is that you are handing over what equity you have built in exchange for a second mortgage. Like all mortgages, if you fall behind on these payments, your home could be foreclosed upon, even though the second mortgage may be for only ten or twenty thousand dollars. A home equity loan can be a high risk venture if your employment and income are not totally secure – and we are talking about the next five to ten years. That’s the downside – what about the upside?

As mentioned, the interest rates are generally much lower, which can sound attractive. You can also generally take out a second mortgage for five or ten year periods. Note that a long second mortgage period means you are often paying much more in interest compared to just paying your existing loans. However, because the interest is lower and the repayment period is an extended one, the monthly repayments can be quite small. Another benefit is that all your debts are now rolled into one – this makes debt management much easier, especially if you do not accumulate new debt.

Home equity loans can be a valid alternative to bankruptcy. If you are in secure employment, then you can be steadfast in not accumulating new debt and if you choose the shortest payment period that your budget can afford. If your employment is not secure, or if you cannot control your spending, then a home equity loan could be a fast way to lose your home – consider a Chapter 13 bankruptcy instead. At least that way your debts are eliminated and you get to keep your home.

Related posts:

  1. Using Bankruptcy Law To Protect Your Home Equity
  2. Is Debt Consolidation A Viable Alternative To Bankruptcy
  3. Consolidate Student Loans To Avoid Bankruptcy
  4. How Bankruptcy Fails Many Home Borrowers
  5. Bankruptcy And Student Loans