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We practice CONSUMER BANKRUPTCY law exclusively. 

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One of the top Bankruptcy Filers

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  4.  » Debt consolidation one way to reduce credit card debt

Many Florida residents and others around the country often use the equity in their homes to get a debt consolidation loan. Interest costs can be considerably lower, and proceeds are frequently used to pay down mounting credit card debt. While paying down debt is important, experts from a consumer financial website don’t recommend using funds from a home’s equity to do so.

Those who support the use of home equity loans report that interest rates are often lower than those for credit cards. Also, where the interest paid on credit cards is not tax deductible, it is for home loans. Conversely, if someone is unable to pay back a consolidation loan, a house is at risk since it was used as collateral. In addition, spending habits are not addressed by simply restructuring the amount of money owed.

Financial experts recommend considering some factors before seeking a debt consolidation loan. First, how quickly can all consumer debt be eliminated. Then, it is important to calculate debt to total income. Depending on the answers, other options may include opening a zero percent balance transfer card, getting a personal loan or filing for bankruptcy.

If a debt consolidation loan appears to be the best solution, someone must decide between a home equity loan or a HELOC. A home equity loan is basically a second mortgage on the value of a home over what is owed on a primary mortgage. There are closing costs, a lump sum payout and monthly payments to repay. A HELOC is set up more like a credit card where someone gets money out as needed. Interest is only paid on the amount of credit used.

There are many options for Florida residents to pay off credit card debt that may have gotten out of hand. A knowledgeable bankruptcy attorney can evaluate someone’s situation and recommend the best course of action. An experienced lawyer can help clients develop plans that will help them regain financial stability.

Source: nerdwallet.com, “Home Equity to Consolidate Debt: Weigh the Pros and Cons“, Jeanne Lee, June 7, 2017