Are Mortgage Refinance and Debt Consolidation Compatible?

December 21, 2009 by  Filed under: Debt 

For those individuals facing financial hardship and searching for ways to address often ballooning debt situations, it is not uncommon to wonder if mortgage refinancing and debt consolidation are necessarily mutually exclusive. The simple answer is that it is quite possible to take advantage of both of these options as sources of debt relief, but the pros and cons of each should be thoroughly understood before committing to either. Making sensible and well-reasoned choices is daunting when one is facing difficult choices and trying to remain solvent, particularly during the holiday season. This is not, however, a reason to compound the problem by making additional poor choices, some of which are very difficult to undo.

The advantages of working with a debt consolidation company include low fees, counseling on available government programs, and debt structures that are usually left separate from one’s home. While these companies do not work for free, even those that are advertised as not-for-profit, if one finds a reputable one, they charge reasonable fees. The professionals at these companies will have the experience necessary to guide one to certain government programs that may be advantageous, and well as to help to organize loan restructuring as needed. Furthermore, in most instances, the loans that are organized are either unsecured or secured by a personal guarantee – there is no need to attach one’s home to other sources of questionable debt.

Home loan financing has the advantage that interest paid on one’s primary residence is tax deductible, but the fees associated with these types of loans are significant. Including many elements that are rolled into the loan, the true cost of this type of borrowing is often higher than one realizes. Additionally, because a mortgage is supported by the collateral of one’s home, in the event that one defaults on a home loan refinancing, it is likely that one will lose one’s home. Rolling other forms of debt into one’s mortgage can be attractive, but between the cost and the risk, should be carefully considered.

Depending on one’s specific debt situation, it is possible that these two methods may be combined, simultaneously pulling cash out of one’s home and consolidating other forms of debt. The risk here is that one will miscalculate or underestimate the difficulty of servicing both sides of the debt and will create a situation where default is likely. Given that one’s home may be at stake, this path should be entered into with extreme caution.

NOTE: By researching and comparing the best debt consolidation companies in the market, you will determine the one that meets your very specific financial situation.

Hector Milla runs the Best Debt Consolidation Services website – where you can see his best rated debt consolidation service. Visit for further information.

Article Source:

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Hector Milla - EzineArticles Expert Author

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