The Many Faces of Debt Consolidation Collateral

By Sonja Albrecht
Mortgage Credit Problems Columnist

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Debt consolidation is pretty straightforward if you have home equity. But what if you can't bet the family farm? Even if you can't depend on your home to buoy you through tough times, chances are you still have some assets you can leverage.

Here are some alternative anchors for a secured debt consolidation loan:
  1. Life Insurance. If you have whole life insurance, you can borrow against its value. There's no time limit for repayment. The amount will be subtracted from the payments made to your beneficiaries, however, so it makes sense to restore your original balance once you're back on your feet.
  2. Retirement Funds. Your retirement fund can also provide the temporary debt consolidation relief necessary to turn your luck around. Again, it's important to replace the emergency funds as soon as the skies clear. You don't want to rob your future to get out of trouble now.
  3. Investments. Expert opinion varies on whether it's wise to use appreciating assets to secure a debt consolidation loan. In some situations, it's unwise to risk a strong, long-term investment to get rid of a temporary shortfall. If the debt is more entrenched, however, it pays to get rid of it as fast as possible, by any means necessary. A financial advisor can help you assess the numbers.
  4. Family. Many people count on their families when times are tough. Personal loans rely on emotional rather than financial assets as loan "security"--trust, intimacy, familial bonds. Only stake your debt consolidation on this priceless collateral if you are absolutely sure you can live up to your side of the bargain.
Debt consolidation home loans are not the only option for borrowers with bad credit. If you marshal every possible resource, chances are you have some other lifeline to a lower interest rate loan.

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