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Decling Home Values Spell Trouble For Those Looking To Consolidate Debt

Created: On November 18, 2008 @ 11:44 am In

“Four out of five metropolitan areas recorded lower home prices in the third quarter from a year earlier, while existing-home sales fell in 32 states from the second quarter, according to the latest quarterly survey by the [1] National Association of Realtors®.”

Underwriting guidelines continue to tighten. Lenders are requiring that homeowners have more equity than before.

Gone are the days of leveraging the full value of your home.

This all spells trouble for those consumers who were planning on utilizing available home equity as a debt consolidation loan.

If you’ve grown accustomed to borrowing against your home to pay off other debts, you may be forced to explore other debt reduction or elimination strategies.

Options

  1. Increase your payments. If you can currently afford to make the minimum payments on your consumer debt, it’s time to cut spending in other areas and begin to apply the savings to paying down the principal balance on what you owe. You can either tackle the higher rate debt first or you can work to pay off the smallest balance first. Choose whichever strategy will keep you motivated.
  2. Consumer Credit Counseling. Consumer Credit Counseling agencies can work with you in creating a budget and if appropriate, they can enroll you in a debt management plan (DMP). In their debt management plan, they will negotiate with your creditors to reduce the interest you are paying and they may help eliminate any penalties or fees that have been assessed. Expect to pay a nominal fee for this service and understand that this is a longer-term solution since it can often take 3-5 years to complete. If you are unable to afford your minimum monthly payments right now or have fallen behind, this may not be an available option.
  3. Debt Settlement. You do have the ability to negotiate a settlement with your creditors allowing you to eliminate the debt for less than what you currently owe. This strategy is typically reserved for those consumers who have fallen behind or soon will be unable to meet the minimum monthly payment obligation - and prefer to avoid bankruptcy.
  4. Bankrutpcy. This is typically reserved as the last option, however, it can be an effective way to either completely eliminate your unsecured consumer debt or enter into a repayment plan that is more affordable. It is recommended that you meet with a bankruptcy attorney to discuss your bankruptcy options, what you would qualify for, and how it would impact your financial life.

Although the options are changing, there are still effective ways to eliminate debt. Utilizing home equity for debt consolidation, while convenient in the past, may not have been the best option for your situation to begin with. Exploring the other available paths like debt settlement and consumer credit counseling may help you find a solution that allows you to meet your debt reduction goals.

About the Author:
Chris Rocks is the Regional Director of the [2] National Credit Federation (NCF), a consumer advocacy group that assists small business owners and consumers overcome debt and credit challenges. He can be contacted by visiting his personal site, [3] GoodCreditLiving.com.

Article printed from DebtHelp.com Blog: http://www.debthelp.com/blog

URL to article: http://www.debthelp.com/blog/2008/11/18/decling-home-values-spell-trouble-for-those-looking-to-consolidate-debt/

URLs in this post:
[1] National Association of Realtors®: http://www.realtor.org/press_room/news_releases/2008/home_prices_rise_in_some_metro_areas
[2] National Credit Federation: http://www.nationalcreditlawyers.com
[3] GoodCreditLiving.com: http://www.goodcreditliving.com