HOW IS DEBT CONSOLIDATION DIFFERENT THAN A LOAN?

You have seen debt consolidation loans advertised and they may look attractive.  With a debt consolidation loan a bank will give you loan against your property.  You then use the money from the loan to pay off high interest credit cards. Typically, you are required to use the equity in your house as collateral. Often, people who are in deep debt do not have equity in their homes.  People who do have equity may be concerned about taking on more debt. 

You must be careful in your decision.  Many people report that Re-Financing with a consolidation loan or a second mortgage pushed them over the financial brink. Pay attention to the interest rates and use caution to avoid digging yourself in deeper in debt.  People with little or no equity in their homes may find themselves paying a high interest rate and not making much progress towards their goal of a debt-free life and financial freedom.

A common myth is that debt consolidation loans are tax deductible. This is only partially true. Interest paid on mortgages that exceed the value of the house, used to repay credit cards or personal loans (called unsecured consumer debt) is not tax deductible.

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