Debt Consolidation Blog

The baby boom generation is marching towards retirement with two distinct traits: 1) a vast wealth of home equity thanks to the boom in real estate that has slowed only recently and, 2) a heavier debt load than any prior generation of retirees. Together these factors seem a good match for taking on a reverse mortgage to consolidate debt.

Reverse mortgages are financial tools geared toward senior citizen homeowners that allow them to turn the equity in their homes into cash without having to worry about monthly loan payments. Instead, payoff of the loan and accrued interest are deferred until the homeowner dies, sells or moves out. Moreover, no matter how large the loan balance grows, the homeowner (or estate) never owes more than the market value of the home.

So, it seems like an ideal combination: seniors can consolidate and pay of their credit card debts with home equity and not have to worry about monthly payments.

But there is a downside. Reverse mortgages carry steep upfront closing costs for things like appraisals, mortgage insurance, and lender’s fees. The key to a successful reverse mortgage transaction is to have the loan outstanding for a long time (seven years or more) to amortize these costs. If the loan is paid off within a few years, the true cost (APR) of borrowing can be very high. However, a recent study published by HUD indicates that most reverse mortgage loans terminate within seven years.

Reverse mortgages can be useful tools for debt consolidation, but borrowers must be cautious and must educate themselves thoroughly about the pros and cons of reverse mortgages.

Some people are promoting credit cards as good financial tools. This may work for some people, but if you are having problems managing your finances, credit cards can be the worst financial thing you could possibly do.

In today’s world having a credit card may almost be a necessity. This is especially true if you do a lot of travel. Previously we’ve suggested freezing your credit cards in order to help maintain the flexibility while limiting your opportunity to make impulse purchases.

If you are using credit cards, you should pay the balance off at the end of each month. Most people didn’t get into a situation where they need to seek consolidation services overnight. Usually it was just a $200 balance carried over one month-a $500 balance the next and before they know it, they owe $50,000 in credit card debt on top of a house and car payment.

Avoid the temptation of easy credit. It will come back to bite you in the form of a 30 year debt consolidation loan that is your only option to avoid bankruptcy. If you use a credit card, pay it off each month. Don’t pay the outrageous interest rates that credit card companies will charge you. If you absolutely need a loan go to a reputable bank and ask for assistance. Don’t try to make due with plastic.

The best debt consolidation approach is to avoid it entirely. If you are careful to temper your spending and lifestyle choices, you can most likely live in a way that you’ll never need to consider a debt consolidation companies services.

This is not how most people live. Be very very wary of buying anything on credit and be willing to do without in order to avoid debt. Remember not to compare yourself with neighbors and friends. Although you can see their physical possessions, you probably don’t have a true idea of their financial picture. If they are living above their means it will eventually catch up with them.

Be willing to live moderately now in order to be debt free in the future. If you aren’t willing to do this, debt consolidation may eventually become your only escape. While this may not seem like a bad thing, taking 5 year debt and spreading it out over 30 years is never a good idea. Also keep in mind that debt consolidation limits your options for the future. If you want to have the most opportunities available live frugally today so you can live free tomorrow.