Should You Consolidate Debt with Bad Credit?

A Homeowner Loan and Money Problems Could Lead to House Repossession

Apr 10, 2009 Asa Ghaffar

Many consumers with bad credit turn to homeowner loans to consolidate debt and reduce monthly repayments. However, money problems could lead to house repossession.

A bad credit rating is caused by a single missed or late payment on a credit agreement. Adverse credit is registered with credit reference agencies and this makes borrowing money more difficult; monthly repayments are higher and fewer banks will be prepared to lend money. A high APR and money problems mean that many consumers choose to consolidate debt with a homeowner loan.

Consolidate Debt with a Homeowner Loan to Reduce Monthly Repayments

According to CreditAction.org, the average rate of APR charged on a credit card balance is 17.42%. Individuals struggling with high APR credit card debt, personal overdrafts and store cards regularly choose to consolidate debt with a bad credit homeowner loan. The objective of debt consolidation is to reduce monthly repayments, balance household bills and prevent money problems.

Debt Consolidation with a Homeowner Loan Provides a Defined Term

Credit card debt is not only a strain on household bills; there is no defined term for when it will end. This is because many consumers choose to make only the minimum monthly repayment on credit card debt meaning that only interest is ever re-paid. Debt consolidation through a debt consolidation homeowner loan helps people with bad credit escape personal debt via a series of affordable monthly repayments.

Does Choosing to Consolidate Debt with a Homeowner Loan Reduce Interest Payments?

Consumers that choose to consolidate debt with a homeowner loan do so to reduce the amount of interest paid. However, a bad credit homeowner loan tempts many consumers into increasing the overall term. Whilst this reduces monthly repayments, it can increase the amount of interest paid over the duration of the loan. Consumers that opt for debt consolidation should try to avoid increasing the term of personal debt as this may exacerbate money problems.

Does Debt Consolidation with a Bad Credit Homeowner Loan Make Money Problems Worse?

A bad credit debt consolidation loan should help to alleviate money problems as it reduces monthly repayments on personal debt. However, homeowner loans can worsen money problems should personal circumstances alter. Whilst choosing Payment Protection Insurance (PPI) provides peace-of-mind, it also increases monthly repayments.

A Bad Credit Homeowner Loan can Lead to House Repossession

Consumers that choose not to take out Payment Protection Insurance (PPI) run the risk of house repossession in the event of a change in personal circumstances. Consumers may find that they are better-off choosing a debt solution rather than a homeowner loan, especially if they already have a bad credit rating. Taking out a homeowner loan means that a debt solution is no longer possible.

Whilst choosing to consolidate debt with a homeowner loan will help to reduce monthly repayments on personal debt, it does have it's drawbacks. A homeowner loan gives creditors greater powers and can ultimately lead to house repossession. Individuals that already have a bad credit rating may wish to consider whether a debt solution is more appropriate.

Individuals that have signed-up to credit agreements prior to April 2007 should check to see whether an illegal credit card or unenforceable loan agreement is in place. This could lead to the debt being written-off and any adverse credit entries being removed.

The copyright of the article Should You Consolidate Debt with Bad Credit? in Mortgages/Loans is owned by Asa Ghaffar. Permission to republish Should You Consolidate Debt with Bad Credit? in print or online must be granted by the author in writing.