Consolidation Loan

Consolidation loans are used to combine all of one's debts into one monthly payment or, with a previous mortgage, are used to create a new mortgage including all other debts in the total balance. The average American pays close to 11 creditors. Mismanagement of these creditors can mount up to significant debt and a crippling credit score. A consolidation loan can pay off all creditors and leave the debtor with only one monthly payment, thereby increasing borrowing power.

Homeowners with equity will easily qualify for consolidating. Taking out a consolidation loan will allow them to completely pay off many lines of credit. Then, the consolidation company rolls the total amount of money owed into a 15 or 30 year mortgage. The loan can lower the interest rate significantly, and the monthly payments will also decrease, freeing up hundreds of dollars a month for unexpected expenses and keeping the consumer from sinking further into debt. There are many benefits to consolidating. If the debtor has the money to pay bills, but has trouble managing all of the open lines of credit, then a consolidation loan is perfect for them. These loans will also help borrowers benefit from lower interest rates and lower monthly payments, and they could even receive tax breaks on their mortgage.

Unfortunately, consolidating can also carry a number of cons. It is important to realize that the debt management companies are often getting paid by the credit card companies, which means they will choose consolidation loan plans that are best for the creditors, not best for the borrower. Rolling debts into a 30-year mortgage, even at a lower interest rate, still means the consumer ends up paying a considerable amount more than they would have had they paid off the amount in a couple of years. The biggest risk associated with consolidation loans is that once the debt is rolled into the mortgage, the home is considered collateral. If the debtor defaults, their family can be evicted and the home taken over by the lender.

Jesus spent a lot of ministry teaching people how to manage money. He understood that paying what is owed to creditors is a good witness of how the Holy Spirit has impacted one's life, and He promises to bless the faithful for it. "Well, thou good servant: because thou hast been faithful in a very little, have thou authority over ten cities" (Luke 19:17). Consolidation loans may be the answer to getting control over one's finances, becoming debt free, and honoring God, but the debtor will need to seek wisdom to make the right decision.

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