Is it wise to consolidate loan to pay unsecured debt? Let us analyze the approach and discuss the drawbacks.

After consolidating a loan, a lot of things happen. First the equity in your home gets "cashed out" meaning the homeowner now owes that much more on their home than they did before. This increases the overall payments as the closing cost and other fees get added into the loan. The homeowner would typically have an additional debt to pay (second mortgage) or at least have a significantly higher monthly payment than he did before. This may be cost effective depending on what rates of interest were being changed on the debts and is being charged on the mortgage. If things work out well, then in certain cases debt consolidation can be a good option.

Your unsecured debt is converted to secured debt. This means, the unsecured debt has now been secured against the home! Would you even prefer spending a single dollar on your credit card if you knew it would mean losing your house if you can't pay? How many people think that getting a lien on one's property is not a bad thing? Honestly, securing unsecured debt is a person paying to have lien on their house. Also with unsecured debt there is hope of bankrupting the debt if all goes wrong but with a "consolidation loan" the only way to escape the new debt is to foreclose/surrender one's house if payments can't be made.

Instead of considering a debt consolidation loan one might also consider debt settlement. Debt settlement does not secure your unsecured debt. Also, instead of paying the whole debt (plus closing costs) the client pays a fraction of the debt over time. The monthly payments are much more affordable. Debt settlement gives an option of becoming debt free in 3 to 5 years. The client decides the tenure and monthly payments. Debt settlement facilitates being debt free without taking the risk of securing unsecured debt. Debt settlement has a drawback, debt settlement affects your credit scored negatively; If you think that you can take a hit on your credit scores to save thousands of dollars, debt settlement would be a good option for you.

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Debts free life provides debt elimination and debt settlement services to consumers. Please visit our website: http://www.debtsfreelife.com/