Archive for September 26th, 2007
Home equity loans are something that are mentioned, but few people actually really understand. So just what are they and can they be a good option to consolidate your existing debts?
What is a Home Equity Loan?
Basically, a home equity based loan is a type of loan that acts similar to a second mortgage. You will be borrowing a sum of money based on what your home is worth and it does, unfortunately, come with quite a high risk. Now there are different types of home equity based loans that you should be aware of. These include:
- A Closed End Equity Loan
- Home Equity Line of Credit
The above are the main two types of home equity based loans available and, generally, the Closed End Equity loan is the most popular. This is because it allows you to borrow a set amount of money that is secured against the value of your home. However, you need to think carefully about how much you borrow.
For example, if you have the opportunity to borrow $50,000 but you choose to only take out $25,000, you will not be able to borrow the extra $25,000 later on and you would actually need a different type of loan. So make sure that the amount that you are borrowing is actually the amount that you need.
How a Home Equity Loan Could Benefit You?
A home equity borrowing could benefit you by helping you to pay for anything you basically want. You will receive the payment in one large sum, or you could choose to receive it in smaller monthly portions if you would prefer. You can basically spend the money on anything you like and many people do choose to consolidate their loans with them.
It is usually the case where people have more than one type of loan throughout the period of their lives. It could be that you have store card debts, credit card debts and personal loans that all demand a monthly repayment. If so then consolidating your debts using a home equity loan would certainly be a good idea. While you will not be getting out of debt initially, you will be helping to make your repayments a little more bearable. You will be combining all of your different debts into one manageable monthly repayment.
Now, the main advantage of a loan that is based on your home equity is that you should be able to get a low interest rate on the loan. This is because the loan will be secured against your property and lenders see that as a good thing because it gives them a little security if you fail to pay them back. This means that while it may be good in the beginning because of the lower repayments, you do still have to ensure that it will benefit you in the long run.
Can you afford to pay off the monthly repayments on the equity loan every single month? It is essential that you do not miss any repayments as if you do, you could easily lose your home. Overall, a home equity loan can really help you to consolidate your debts and give you better control over your finances.
September 26th, 2007
Dave Ramsey is a very knowledgable guy when it comes to the principles of getting out of debt. He has a very compelling personal story of how he got out of debt and is using that knowledge to help others. Although I may not be as well known as Dave Ramsey, I am also passionate about helping others become debt free and retire wealthy. Dave teaches alot of great information in his books and cds but there are a few points that I have to disagree with.
1. Dave suggests that home equity lines of credit and credit cards are not a good idea to have if you want to get out of debt.
Actually, credit cards and lines of credit can be the best thing to come along to get out of debt if they are used the right way.
2. Dave suggests to get a 15 year mortgage instead of a 30 year mortgage to pay your mortgage off faster.
I have to disagree with this as well. There is an alternative to paying off a 30 year mortgage in less than 15 years without having the high monthly payment of a 15 year mortgage.
3. Dave suggests to use a debt rollover strategy to pay down your small debts first and eventually larger ones.
Making extra payments is helpful but takes along time and alot of discipline.
The reason I disagree with these suggestions is because I have been using an incredible strategy for the last 5 years that has helped my wife and I become debt free and supercharge our retirement account. Its a different way of looking at and using your money.
With conventional school of thought I would probably agree with Dave Ramsey, but there is a better way to rapidly get out of debt and quickly fund a retirement account without using conventional methods. There is a way to start taking advantage of how you manage your money to your benefit instead of the banks benefit.
Sometimes you have to think outside the box to get better results.
September 26th, 2007
Debt takes on a very negative connotation in todays financial parlance. Words like subprime, credit crunch and recession assail viewers every time they turn on the broadcast news. Recently, the Federal Reserve cut interest rates to help an economy struggling with debt. But not all debt is bad. This article highlights differences between good and bad debt, along with offering several debt-relief options for those in financial trouble.
Good Debt
Good debt is secured with a valuable asset, like a home mortgage or, perhaps, a car loan, and can be considered an investment. Home loans are good because over time a homes value increases. Student loans are also considered good debt because they are also like an investment. Students who graduate with a college degree earn, on average, higher incomes than those that dont.
Home loans and college loans are good for another reason: they usually have very agreeable terms. Both types of loans come with very low interest rates, and borrowers repay the debt over a long period. The typical home loan, for instance, carries a 30-year term. The interest on college loans is so affordable that the graduate can repay their loans slowly over a long period as they gradually earn more money and build their personal wealth.
Therefore, good debt helps borrowers by increasing their wealth and by building a healthy credit history. Borrowers who repay their debt diligently earn a good credit score and become eligible to borrow more good debt in the future.
Bad Debt
Bad debt is any debt that either has unfavorable terms like some credit cards or is blatantly wasteful and expensive. Some credit cards have favorable terms and, if consumers are diligent and pay their entire balance every month, they too can help build a good credit score. But credit card debt becomes bad debt when the consumer carries a balance for an extended period, abuses the card, misses payments or pays late. This will negatively affect credit scores and make it much more difficult to acquire good debt in the future.
Other examples of bad debt are payday loans and pawnshop loans. These debts carry ludicrous terms, with interest rates often two or three times as high as credit cards. These debts are bad because they dont offer the consumer long-term financial help. These bad debts are a quick financial fix and should be avoided at all costs.
Debt Relief Options
Help is available for the consumer tangled in bad debt. It is not easy to recover from a desperate financial situation, but it can be done with some discipline, patience and hard work.
Debt consolidation is a useful option for consumers with large low-interest debts, like home mortgages. By moving their high-interest credit card debt into a home mortgage, consumers save a bundle on interest payments. The only caveat to this method is that consumers should be wary of borrowing too much against their homes value, which will extend their loan and make it more difficult to pay back.
Debt settlement is a great option for consumers who have high-interest credit card debt. This involves negotiating with your creditors to cancel a portion of your debt sometimes by as much as 60 percent. Unfortunately, debt settlement is only available to consumers who are having a difficult time paying their minimum payments every month. Generally, consumers with less than several thousand dollars in debt will not qualify for debt settlement.
September 26th, 2007
