Pros: Dramatically lower your monthly payments, interest
payments on your new balance may be tax deductable, maintains or
improves your credit rating by lowering the balance on your
unsecured debt. You should pay a much lower interest rate on the
unsecured debt once you roll it into a home loan.
Cons: You will need good to excellent credit to qualify for the
loan. In light of the Subprime Meltdown, lenders are typically
only offering loans up to 90% of your home's value. You need to
have enough equity to pay off the unsecured debts. There are
fees involved in originating the new home loan. The interest
rate you pay on the loan will be lower than those charged by
credit card companies; however, you will be paying the loan off
over a longer period of time so your total interest payments
will be higher.
Debt Settlement or Debt Relief
Pros: Debt settlement companies negotiate with your creditors to
lower your unsecured debt and work out a payment plan you can
afford. For a fee they will handle all negotiations and set you
up with a monthly payment plan that should get you free of
unsecured debt within 24 - 36 months. You may also lower your
overall debt payments by up to 60% depending on what you owe and
the terms of your workout plan. Debt settlement can be a good
alternative to bankruptcy; you should end up paying lower fees
and you won't have to go before a judge.
Cons: Debt settlement will have a negative impact on your credit
history. If you already have bad credit this may not be much of
an issue, or if you have good credit and are falling behind on
your payments then your credit is deteriorating anyway.
Personal Loan
Pros: You will pay lower fees and do less paperwork when
obtaining a personal loan versus a mortgage loan. Approval is
also quicker; most lenders are able to give you an approval
within a couple of days if you qualify. You may lower your
monthly payments depending on the term of the loan. Personal
loans are unsecured so you will not be taking on additional risk
that you would take on if you pay off your debts with a home
loan. Homeownership is not required for a personal loan. If you
have less than $10,000 in unsecured debt then a personal loan
may be the right way to go.
Cons: Personal Loans often have interest rates that are as high
as a credit card depending on your credit. A personal loan may
have a negative impact on your credit history. The credit
bureaus view these loans as a last ditch effort to restructure
your debt and may reduce your credit score because of this. You
will lose the option of making a minimum monthly payment that
credit cards give you.
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