Debt and Refinancial Help

Thank you for your question. First, I want to assure you that you are not alone in this predicament; many consumers find themselves buried in debt and struggle to 'unlock' the equity in their homes.

Thankfully, I can think of several possible solutions to your problem, but which option is the best for you will depend on how the debts, your home's value, and how much money you can afford to allocate to your debts on a monthly basis. If you follow the links below, I can put you in contact with a company that may be able to assist you in resolving these debts.

Very quickly, if you want a free debt consultation with one of Bill's approved debt help partners, click here: http://www.bills.com/debthelp/debt/

Now... on to your options:

Since you own a home, a secured debt consolidation loan may be right for you. This type of loan is essentially a home equity loan which is used to pay off your other creditors. Secured consolidation loans help many consumers by consolidating all of their debts into a single monthly payment with a lower interest rate and payment amount. The big considerations for getting 'approved' for a refinancial loan (typically called a mortgage refi) are Loan to Value (typically rule of thumb is that 80% is reasonable), Debt to Income (typically anything above 50% is very high, and anything below about 30% is good) and lastly credit rating (a FICO score is an indication of your credit worthiness and ranges from 300 on the low end to 850 at the top).

However, in your case your Loan to Value (LTV) will be very high if you refinance and add that $20,000 plus lender fees to your current mortgage, so it could be tough to get approved. Also, be careful before you borrow money against your home to pay off credit cards and other unsecured loans; you will be converting what was previously unsecured debt into secured debt. This could cause you problems down the road if for some reason you are unable to make your payments, or if life circumstances force you to file bankruptcy, as you may not be able to discharge the secured debt as you would unsecured debt. However, secured debt consolidation loans work for many people, so this is an option to consider carefully–the Bills.com Savings Center is a great resource to help you find a lender for this type of loan.

If you want to see if this loan can be done, Bills.com makes it easy to compare mortgage offers and different loan types. Please visit the loan page and find a loan that meets your needs at: http://www.bills.com/mortage/refinance/

HOWEVER, the first recommendation I make to anyone obtaining a mortgage refinance or purchase loan, such as your contemplated refinance loan, is to shop around with several different lenders to find the best deal available. Currently, the average interest rate on a 30 year fixed rate mortgage is around 6.5%. Depending on your credit score, your interest rate will be more or less than average. For example, if you fall into the “sub-prime” category, meaning your credit score is below 620, you should expect to pay more than the interest rate charged to borrowers with excellent credit. Keep in mind that certain types of mortgages use a teaser rate, usually charged for the first two to five years of the loan, to put borrowers in homes they may not be able to afford. In order to analyze what your mortgage will truly cost, you need to analyze what your interest rate will be once your initial rate expires.

The only way to determine whether or not you will qualify for a refinance loan is to apply for a loan with several different lenders and/or brokers. Not only will these mortgage professionals be able to tell you whether or not your currently qualify, but if you do not qualify, they can tell you what aspects of your credit history you need to improve before obtaining a loan. If cannot find a lender willing to extend you credit, you should work on improving your credit score and reapply when your score has improved sufficiently. When you talk to a lender, he can tell you the minimum score required, giving you a goal to work toward.

If you cannot get your mortgage refi approved, you have two other debt resolution services to consider:

Another option to consider is a Consumer Credit Counseling Service, or CCCS. CCCS companies offer numerous services, such as financial counseling and budget planning, as well as Debt Management Plans (DMPs). In a DMP, the CCCS would arrange a new payment amount with each of your creditors, usually based on a reduced interest rate. You would then make a single monthly payment to the CCCS which would distribute the funds to your creditors, based on the new payment amounts. There are several drawbacks to CCCS, though. First, depending on your creditors, it may not be able to reduce your monthly payments enough to improve your financial situation. Second, it may have a negative impact on your ability to obtain a loan, so you may not wish to enter into a DMP if you anticipate any large purchases, such as home or an auto, in the near future. Third, the average DMP takes around five years to pay off your debts, so you must be willing and able to commit to a long-term repayment plan.

You may also want to consider the services offered by debt settlement firms. Rather than making monthly payments to your creditors, these programs negotiate lump sum settlements with your creditors, frequently reducing your debts by 50% to 60% of your principal balances. These programs usually take only 2-3 years to complete, so this is a good option for many people to rid themselves of debt in a relatively speedy manner. In many cases they can also reduce your monthly payment toward your debt. There is one major drawback to debt settlement programs, though–they will significantly damage your credit while in the program and for at least a year or two afterwards. However, if you are currently unable to afford to pay your creditors, the hit to your credit may be worth the benefit of ridding yourself of credit card debt. Because of your financial difficulties, you may want to stop focusing on the importance of your credit score. Although you may have a good credit score, because of your low income and large debt amount, most lenders will likely see you as a high risk borrower, and may not be willing to extend you credit, so your actual credit rating may not good as you believe. A debt settlement program is probably the fastest way to resolve you debts, and once you repay your debts, you should be able to rebuild your credit score through careful management of your credit accounts.

Hopefully, one of the several options I have described above may be able to help you. I encourage you to explore the Bills.com website, http://www.bills.com/debthelp/ to read more about these and other options available to you.

I hope this information helps you Find. Learn. Save.

Best,

Bill

www.bills.com