A debt consolidation loan is probably one of the best ways to eliminate debt.
Using a home's equity to consolidate bills is the best type since the interest rate would be lower using a home mortgage.
However, there can be major problems when consolidating bills using your home's equity.
This is the reason for all the foreclosures.
People consolidated everything into one loan and then went on another buying binge to increase their debt again.
Most people never had a plan or an intention of getting out of debt when they consolidated their credit card bills.
They say they could save money on their monthly payments and disregarded the interest rate.
Now people realize a debt consolidation loan works if they follow a plan.
The plan is if you are going to save $500 a month in payments save some of the money or pay back on mortgage.
A lot of mortgage brokers showed people how much a client could save, but never a plan for the savings.
A lot of people went and spent that extra $500 then a year later were in the same position as before the loan.
The best analogy I can give is someone takes up some exercise and cut down the amount they eat and ends losing 20 or 30 pounds.
After a couple months they decide they don't have to follow the plan anymore since lost all that weight.
Well a year later they gained all the weight back.
This is what happens to someone with a debt consolidation loan.
They lose all those extra payments and profess "they will never do that again.
" Unfortuatley life happens and unexpected expenses happen.
Now we all realize expenses do occur, but with a plan to handle the expenses they can be minimized.
I have heard from clients that tell me, " the debt consolidation loan was the worst thing they ever did.
" They believe their situation would have been better by not consolidating.
I would have to agree since they did not have a plan for the savings.
Usually when someone consolidates their bills they receive a pay raise.
Since the money was not expected a couple months earlier they go and spend the savings.
Having a quality plan is the way to increase your success with debt consolidation loan.
The best advice I can give someone is something very simple plan.
Do a 50/50 plan.
Whatever you save take 50% and save that amount.
The other 50% pay on your new mortgage.
Since you were paying more than that before it should be easy to use 50% of the savings back on your mortgage.
The other 50% can help create an emergency account to pay for unexpected expenses.
The most important thing is not to spend the savings.
I hope this helps