What to Do After You Have Consolidated Your Debt

By Karen Lawson
Mortgage Credit Problems Columnist

As household expenses increase, you may want to consolidate your debt. Refinancing your mortgage or taking out a home equity line of credit can help reduce payments, but what's next? A debt management plan can help you avoid past mistakes while improving your credit rating.

Bad Credit Mortgage Loans and Debt Consolidation

If you're missing payments on your bills, and your credit card balances are creeping higher, it's time to consider debt consolidation. Mortgage lenders can provide bad credit loans for those struggling with debt. Depending on how much home equity you have you may qualify for cash-out refinancing. Another option is a home equity line of credit or HELOC. Either choice means drawing against home equity to get cash for paying bills. Benefits of debt consolidation through home equity financing include:

• Reduce the number of bills you have
• Consolidate consumer loan balances (credit cards, auto loans, medical bills) to reduce interest rates
• Eliminate extra finance charges such as late fees and overlimit fees
• Some homeowners may realize income tax benefits by converting consumer debt to mortgage debt. Consult a tax advisor to determine if this applies to your situation.

Improving Bad Credit with Debt Management

Whether or not you take out a bad credit mortgage loan for debt consolidation, it's important to dig deeper into your finances. A financial advisor can help you understand how and why your past use of credit caused financial problems. A debt management program can help you:

• Review your current finances and spending patterns
• Reduce debt and establish a repayment plan (if eligible)
• Develop a cash-based household budget and savings plan
• Understand problems with spending and how to avoid them

Debt consolidation and debt management are not mutually exclusive; you can consolidate debt and develop an ongoing debt management plan. If you don't have enough home equity to qualify for home equity financing, ask your mortgage lender for information about reputable credit counseling agencies in your area.

About the Author
Karen Lawson is a freelance writer with more than fifteen years of experience in mortgage banking. She holds an MA degree in English from the University of Nevada, Reno.

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