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Debt Consolidation Home Loans - Advantages and Disadvantages - Lower Credit Card Interest Rates and Tax Write-Offs

July 6th 2006

Debt Consolidation Home Loans - Advantages and Disadvantages - Lower Credit Card Interest Rates and Tax Write-Offs

Business

With the rise of interest rates, debt consolidation is becoming more common.  It entails taking out one loan to pay off many others, and is often done to secure a fixed interest rate or for convenience.  It is easier to write one check than many.

It may also be advantageous, especially if you are consolidating credit card debt into a fixed home loan.  Although there is some risk in converting unsecured debt into secured debt, there may also be a tax write-off.  Also, the change in the bankruptcy laws has made it more difficult to remove debt via bankruptcy. Consolidation could also entail placing unsecured loans into another unsecured loan, but more often it involves a secured loan against an asset that serves as collateral, which is often a house.

 

In cases of a secured loan, the interest rate can be reduced due to the reduced risk of the lender.  When a debtor is in danger of bankruptcy, the debt consolidator may buy a loan at a discount.  According to Wikipedia, a prudent debtor can shop around for consolidators who will pass along some of the savings.  But be forewarned, a consolidation can affect the ability of the debtor to discharge debts in bankruptcy, so the decision to consolidate must be weighed carefully.

There are some advantages in securing a lower interest rate over a longer period of time.  The lower rates can allow for the debt to be paid off sooner because the amount paid toward the principle can be significantly more. 

 

It may be better to shop for a loan before payments are missed and your credit score is harmed.  Some unscrupulous companies will knowingly wait until a client has backed themselves into a corner and must refinance in order to consolidate and pay off bills.  In these cases the available lenders may charge the maximum allowed interest rate and the barrower will be force to pay any allowable fee to complete the debt consolidation.

You may also want to consider consolidating a loan into non-secured debt.  There are numerous credit card offers available that can lower the rate of interest.  Some companies will offer zero percent interest for a limited time.  If you are in a position to take advantage of these offers, zero interest is best. 

 
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Dan Wilson
Best Syndication

Books on Lending

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Important:  The material on Best Syndication is for informational purposes only and is not meant to be advice. You should always seek professional advice before making financial decisions. 
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