With the national unemployment rate still near the 10-percent mark, consumers are struggling to pay off their home equity loans, something that might lead to an increase in the number of debt consolidation loans taken out by desperate individuals. A new report from the American Bankers Association in early April showed that consumers are struggling more than ever to pay their home equity loans on time. The reasons for this are simple: Many consumers are out of work. Others have had their pay slashed. Others have seen their home values plummet, erasing a major source of their paper wealth. It’s little wonder, then, that debt consolidation loans, which help consumers manage spiraling debt, are looking like attractive options to a larger number of individuals.
Late Payments on the Rise
According to the numbers released by the American Bankers Association, late payments on home equity loans hit a new high in the fourth quarter of 2009, when a total of 4.32 percent of all home equity loans were at least 30 days late. That’s a slight increase from the 4.30 percent of late payments in the third quarter of last year. There is some good news, though. Consumers are doing a better job of paying off their credit-card bills. According to the bankers’ numbers, late payments on consumer credit cards fell to 4.39 percent in the fourth quarter. That’s down from 4.77 percent in the third quarter. At the same time, the bankers reported, eight out of 11 consumer loan categories saw late payments drop in the fourth quarter of 2009. It’s certainly a good sign that consumers are paying off their RV, marine and personal loans on time.
All Is Not Well
That doesn’t mean that all is well. The fact that consumers are struggling to pay their home equity loans is troubling. These are secured loans, with owners’ homes acting as collateral. If these owners miss too many payments, their banks can take over their homes. The last thing the country needs as it continues to dig out from the Great Recession is more housing foreclosures. The threat of losing their homes may lead a growing number of these struggling consumers to the services of debt consolidation companies.
The Debt Consolidation Choice
This is not necessarily a bad thing. Yes, debt consolidation loans do come with higher interest rates. They do sometimes come with high fees. But consumers who do their research should know all this. Even with these negatives, debt consolidation might remain the best option for consumers who are struggling with debt. It is a far better choice, after all, than going through the pain of a housing foreclosure.