When our family went through a hard time financially, we looked at many different ways to help bridge the gap. Debt consolidation seemed like a good option, because we could roll all our debts together and pay one manageable payment each month.
The company we applied with had been running ads on the radio and said that if you owned your home, you could qualify for a loan. Really, it was a second mortgage. The interest rate and monthly payment seemed reasonable, but when we went to sign the papers there was just one problem. We used our own lawyer, despite being referred to a lawyer by the representative. This should have been a big red flag.
Our lawyer pointed out in the fine print that on top of the interest rate, there was a gigantic fee, which when factored into the deal, would mean we’d be paying over 22% in interest and fees.
Honestly we would have never noticed this huge fee because we don’t typically read all the fine print. Had it not been for our lawyer, we would have signed a very expensive deal that would have cost us more than what we were currently paying on our credit cards.
If you are considering getting a home equity loan to consolidate your debt, make sure you read the fine print and understand exactly what it will cost you. And remember, consolidating your debt may help in the short-term, but look at why you got to where you are now and why you racked up so much debt in the first place. You need to make permanent spending changes so that you don’t end up having to consolidate again.