Cons to consolidating debt
To do this, many or all of the products featured here are from our partners. Because of these risks, Nerd Wallet recommends that you reserve home equity for emergencies.Consider these pros and cons: Pros A homeowner with good credit is likely to have better options that don’t risk the house.Many people see debt settlement –an option that advertises to help you pay off your debt for much less than what you owe– as a way out of their financial woes.However, the truth isn’t quite as simple as all that.A homeowner with shaky finances shouldn’t move unsecured debt that can be erased in bankruptcy to secured debt that can’t. That’s the maximum time you’d be required to make payments toward Chapter 13 bankruptcy or a debt management plan — after which your debt would be fully retired.Chapter 7 bankruptcy would wipe out your debt immediately and get you on a path toward restoring your credit.Debt settlement isn’t without pitfalls and consequences — and it isn’t for everyone.Debt settlement is, simply put, hiring a debt settlement company to help negotiate lower payoffs on personal loans, collections, and open accounts like credit cards.
Plus, even though you’re ignoring your lenders (as directed by the settlement company), they will continue to report late payment status updates to the credit bureaus, which will continually get worse until the account is charged off or goes to collection — or is settled, which is the settlement firms main goal.Many times this amount is less than 50% of the original debt, which can end up saving you quite a lot of money in the long run.Now for the cons, there are quite a few so stay with me.MORE: Calculate personal loan rates If you’ve ruled out other options, weighed the pros and cons of consolidating with home equity and determined it’s the viable path, then it’s a choice of a home equity loan or a HELOC.Home equity loans are a type of second mortgage based on the value of your home beyond what you owe on your primary mortgage.