Bankruptcy Versus Debt Consolidation Loans

Before filing for bankruptcy, consider debt consolidation loans that enable you to refinance credit card debt with a second mortgage loan.

Nationwide has helped countless homeowners avoid consumer credit counseling or bankruptcies simply by consolidating revolving debt into a reduced rate loan that carries a fixed interest rate.

Many consumers are finding themselves with heavy credit card debt and unable to make the newly increased payments. In the past, struggling debtors behind in payments with no solution in sight could file a Chapter 7 bankruptcy and eliminate any unsecured loan. With the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 now in effect, filing a bankruptcy is not the easy answer it used to be. Noted bankruptcy specialist Michael H. Reed, partner in the law firm of Pepper Hamilton LLP in Philadelphia explains, "Under the new amendments, the bankruptcy trustee, or any creditor, can move to dismiss a Chapter 7 filing if the debtor's income is greater than the state median income."

With bankruptcy often not the best option, the better solution is debt consolidation loans. If you have equity in your home, now may be the time to tap into it and get your credit card debt under control. A home equity loan can be utilized to pay off all credit debt. The payments on this second mortgage will be much lower than a credit card payment because it is amortized over a longer period. If you get a fixed-rate mortgage, you’ll know exactly what your payments are every month and hopefully be in better position to work out a plan to pay off your debt. A variable home equity line of credit (HELOC) may also be an option for consolidation, but compare interest rates. If you plan to pay off the line of credit quickly, it may be a good decision, but with rates rising, locking in a fixed-rate second mortgage may be the better answer.

Another option is to refinance your current mortgage to either cash out or lower your mortgage payments. Refinancing to an adjustable-rate mortgage will save you money in the short-term if you plan on selling before your rate becomes variable. Mortgage refinancing can also be used to cash out your equity in a lump sum and pay off your unsecured debt.

Article written By Rebecca O'Connor for Nationwide Mortgage Loans

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