Home Equity Loans Versus Consumer Credit Counseling for Debt Consolidation

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With the recent bankruptcy reforms, some consumers might turn to consumer credit counseling to get out of their heavy debt. But, do not forget one of your biggest assets is the home in which you live. While consumer credit counseling does work for many people, some mortgage industry experts think a home equity loan could erase your debt faster and improve your credit almost immediately. First, let’s talk about Consumer Credit Counseling. When a consumer signs up for Consumer Credit Counseling, or CCC for short, the CCC agency contacts each of the creditors and negotiates lower interest rates or no interest at all, and sets up a payment schedule. In severe cases, the National Foundation for Consumer Credit Counseling shows consumers should participate in a Debt management plan or DMP. “A DMP is a systematic way to pay down your outstanding debt through monthly deposits to the agency, which will then distribute these funds to your creditors. By participating in this program, you may benefit from reduced or waived finance charges and fewer collection calls. And when you have completed your payments, we’ll help you reestablish credit.” “When you use a credit-counseling service to structure a debt-management plan, the accounts included in that plan are usually noted on your credit report as “not being paid as agreed,” says Don Taylor, Ph.D. “These creditors may also report that the payments are being received through a credit-counseling service.” A consumer choosing to use a home equity loan to eliminate debt, pays off the debt immediately. Experts say “After using the funds from a 2nd mortgage to repay credit cards, many make the mistake of closing the credit accounts. However, if hoping to boost credit rating, closing older accounts will have a counter-effect. For this matter, never close accounts. If unable to use restraint with credit, cut or destroy the credit cards.” Another benefit to using a home equity loan is the IRS allows you to deduct the interest from your “debt consolidation” whereas CCC usually requires you to pay some interest, and personal credit card interest is no longer a valid tax deduction. “Once credit accounts are paid in full, and homeowners begin making regular payments toward reducing the balance on the 2nd mortgage, a noticeable credit score increase will begin to occur. The key to boosting credit rating is keeping low balances, paying bills on time, and avoiding late payments.”

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