| When a homeowner gets into trouble financially, | | | | not cost you any additional interest nor is it an |
| the first thought that comes to mind is to obtain | | | | actual loan. What happens is a debt counsellor |
| a bad credit home equity loan. Is that always a | | | | works with your creditors in order to work out a |
| wise decision? Is it better to obtain an equity loan | | | | payment plan that allows you to repay the debts. |
| to get rid of those past due bills or to contact a | | | | Quite often they are also able to have the |
| debt management counsellor and work out a | | | | interest rate lowered or eliminated, something |
| payment plan? | | | | that is not done with a bad credit home equity |
| Home equity loan | | | | loan. Because of the reduced interest rate, it's |
| When you find yourself in severe financial trouble, | | | | possible to have your debts repaid quicker than |
| before you decide to apply for a bad credit home | | | | you would be possible with an equity loan. In |
| equity loan, consider the facts: | | | | addition, you still have the equity in your home in |
| You can lose your home if you default on the | | | | case something major should come up where you |
| payments | | | | really need it. |
| The interest rate will be higher because of your | | | | The effect on your credit |
| credit | | | | Keep in mind that a bad credit home equity loan is |
| Your equity will be tied up in the loan and not | | | | a consumer loan, and it will show on your credit |
| available for other purposes | | | | report. In some ways, this is good because if you |
| Your home's equity is all you have left after your | | | | make the payments on time, it gives you |
| credit has gone downhill because of financial | | | | something positive to offset the negative. On the |
| difficulties. If you tie it up in paying the past due | | | | other hand, if you need to apply for a car loan |
| bills, that leaves you with nothing in the event | | | | sometime in the future, it will affect your income |
| something happens that you need to make | | | | to debt ratio. |
| substantial repairs to the house. The idea may | | | | Since a debt management program is not a loan, |
| sound good at first, but when you consider that | | | | it will not affect the income to debt ratio. You are |
| paying off those old bills will not remove them | | | | repaying old debt rather than creating new debt. |
| from your credit report for six or seven years | | | | Surely, the old debt is still on your credit until it is |
| after you have paid them, it may not be the best | | | | paid in full, as opposed to being marked as paid. |
| solution to the problem. | | | | The final decision is that of the homeowner, but |
| Debt management | | | | from a purely economic view, debt management |
| Unlike a consolation loan, debt management does | | | | is the least costly. |