The housing slump has sent home values plummeting, and it has left an ever-growing number of homeowners upside down in their mortgage loans: They now owe more on their mortgage than what their homes are worth. This unfortunate economic reality has led a growing number of consumers to debt consolidation loans to help reduce the amount of credit debt they are carrying.
The National Association of Realtors reported recently that the median home sales price across the nation in December stood at $168,800. That’s down 1 percent from a year earlier, and significantly from the highs in home values the country saw in 2005 and early 2006.
In better times for the housing market, homeowners would have simply taken out low-interest-rate home equity loans to pay down their high-interest-rate credit card debt. That strategy to eliminate debt, though, is becoming rarer today. Far too many homeowners don’t have any equity in their homes, making home equity loans an impossibility. These homeowners, then, have few other choices but to turn to debt consolidators to help them gain a handle on their rising credit card debt.
Consumers who turn to this method will take out a loan with a debt consolidation company. Debt consolidators will then use the loan payments to pay down consumers’ outstanding debt. Often, debt consolidation firms will negotiate with creditors to reduce the amount of debt their clients owe. The negatives with debt consolidation loans, though, are significant: These loans often come with high interest rates and fees. Consumers often end up paying more in total by taking out a debt consolidation loan than they would have had they simply paid off their debt on their own. Debt consolidation loans also harm consumers’ three-digit credit scores – a big problem in today’s financial world.
However, with housing values continuing to take a beating, many consumers have no other choice for bad debt consolidation. Consumers in such a situation should be careful, though, to do their research before taking out a debt consolidation loan. They should ask their debt consolidators exactly how much they’ll have to pay in fees and how high their interest rate will be. They should also ask exactly how long it will take them to pay off their existing debt. By asking the right questions, consumers dramatically improve their odds of taking out a debt consolidation loan that will provide them with real financial relief.