The number of U.S. homeowners who can rely on home equity loans to pay down their debts continues to fall, which might mean increased business for companies offering debt consolidation loans. Depending upon which studies you believe, the number of homeowners who are underwater on their mortgage loans, meaning that they owe more on their home loans than what their residences are actually worth, is somewhere from 10 million to 15 million. That’s a lot of people who can no longer borrow against their homes’ equity – because when you’re underwater, you don’t have any home equity – to pay down their credit card bills and other debts. Where else, then, can these people turn? Debt consolidation loans, of course.
The Debt Consolidation Alternative
Debt consolidation loans take all the debts that consumers have and roll them into one single loan. Consumers then pay down this new loan with monthly payments that they can afford until their debt is paid off. In theory, it’s a good way to relieve the financial pressure of carrying overwhelming personal debt. But consumers do have to be careful: Many debt consolidation companies charge exorbitant interest rates on their loans. Others charge equally high fees. There’s also the matter that, because of fees and interest, consumers will be spending more to pay off their debt with debt consolidation loans than they would have if they would have just paid off their creditors on their own. Of course, without a debt consolidation loan, consumers also don’t have the availability of a single, affordable monthly payment. There are definite pros and cons, then, when it comes to debt consolidation.
Disappearing Home Equity Loans
Financial analysts have long considered home equity loans as good alternatives to debt consolidation. This makes sense: Home equity loans come with far lower interest rates. They also do not damage the credit scores of consumers as debt consolidation loans do. There are some drawbacks, though. Consumers who default on home equity loans could lose their residences. And today, of course, it’s more difficult for a growing number of consumers to get these loans because they simply don’t have enough equity built up in their homes.
Falling Housing Values
Homeowners who purchased their residences in 2004, 2005 and 2006 are often holding a mortgage loan that is worth more than their home’s current market value. That’s because housing prices had soared to unprecedented levels in those years. Now, though, housing prices have fallen to the levels we once saw in 2001 and 2002. This leaves a whole lot of people who either have little or negative equity. For these owners, falling home prices may mean a trip to the nearest debt consolidation firm.