Which is Best: Debt Settlement vs. Home Equity Loan?
So which is a better deal for the credit consumer: Debt Settlement vs.
Home Equity Loan? A home equity loan is basically borrowing money against
the value built up in a home. Typically a homeowner can borrow up to 85%
of their home equity. This is best used when remolding or making home
improvement. The home retains the value of the money borrowed. Often, this
is an option that homeowners may look into for repaying their debts or
unsecured debt relief. It has both upsides and downsides.
The upsides include paying off the consumer's outstanding debt in full,
so collection calls will stop and the debts are consolidated into one
payment. The loan interest can be tax deductible. Interest rates on a home
equity loan are typically much less than the interest rate on a credit
card. If the consumer repays the loan quickly, this will save them a
bundle in finance charges.
The downsides of a Home Equity Loan are turning an unsecured debt into
a secured debt. If the consumer has problems making their monthly
payments, the home is now at risk. Since the interest rate on a Home
Equity Loan may be less than on credit card accounts, it's also compounded
monthly over 15-20 years, which may end up costing more in the long run.
Debt settlements are usually offered by financial institutions in an
attempt to collect outstanding debt. Basically the lender might offer to
settle with the consumer on a percentage of the balance due. A settlement
amount is generally paid in a lump sum payment. For a consumer considering
a debt settlement, there are a few things to think about. A settlement
will reflect on a consumer's credit report. As a black mark, it is better
than a charge off, but a black mark none the less. The effect on the
consumer.s credit may not be worth the cost of the settlement services. It
is best for the consumer to work out settlement offers with their
creditors directly, not via a collection agency. There is little that
another entity can do for a consumer in this instance that they cannot
secure for themselves.
So the simple answer is that there is no simple answer. Each consumer.s
debt and situation is different, so whether debt settlement vs. home
equity loan provides the best solution will depend on the individual. Take
a look at your situation, and decide which, if either, is the right choice
for you.
