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Using a Second Mortgage for Debt Consolidation

Posted by  on May 10, 2010
 
On average every U.S. home carries about $2000 in credit card debt, though most people’s debt proves to be much higher than this number. Lately more and more people need to find a way to consolidate there debt and obtain a much lower interest rate on that debt. Although debt consolidation can’t help with a shopping addiction, it can ease your financial woes.

What is a Second Mortgage?

A home can be one of the biggest investments of your financial career. You’re putting in hundreds of thousands of dollars into a tangible piece of property, which you will be able to hold on to for a long time. As you pay off your home, more and more of it actually becomes owned by you. As you begin to create a difference between what you have paid, minus the interest, and what you owe; you develop equity. With equity you have that money to access as part of your net worth and can use it to your advantage.

Second mortgages use the idea that you should have access to the part of your home you actually own. Since you own that much of your house you should be able to take out a loan and have access to the money now as opposed to when you sell the house. Talking to your lender can help to explain what options you have and how much money you can access.

When obtaining this second mortgage you will be given access to an account, much like a normal checking account. Or you can receive all of this in one large amount. Putting this money to a good use can help relieve financial stresses as opposed to adding to them.

Why Your Debt Needs to be Consolidated

Debts are anything that you are making payments on — credit cards, cars, computers, etc. These debts are generally all being paid off in installment plants, with corresponding interest rates. And in all honesty, it's a pain to pay off multiple debts. You have to remember numerous bills each month, all with different due dates and amounts to be paid. Even worse is that fact that each additional charge on these kinds of accounts is only adding to your debt. What if there was a way to make things easier?

Thankfully there is a wonderful idea called debt consolidation. Taking one big check against your home equity and paying off all your debts allows you to only have to pay one bill a month, and usually helps to lock you in at a lower rate then you were paying. This can also help to improve your credit rating, allowing you perhaps to refinance for a lower rate.

How You Can Avoid Debt in the Future

Debt consolidation can help relieve you from current debt, but it cannot prevent future debts. If you accrue more debts in the future you will still need to pay them off. Learning how to budget your money and spend wisely can greatly help you in the quest to be debt free.

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