It can seem like the obvious choice sometimes to just tap into your home’s equity and pay off credit card, medical, or other personal debt. The money is just sitting there and its better served paying down high interest debt then it is collecting in a home you may have no intention of selling anytime soon, right?

In many cases this is the wrong answer to your problem. If you are falling behind on your payments due to increased monthly costs, lower income, or any combination of these factors, then you are not a good candidate for a debt consolidation loan that involves equity in your home. The reason is that credit card debt is unsecured debt and a home equity loan or line of credit is secured debt. What this means, is that if you stop paying your credit card you will simply damage your credit in most cases. If you stop paying a home equity loan, you will lose your house.

Its really as simple as that to understand. If you can get a unsecured personal loan to pay off your outstanding debt, then please do it. If you are not struggling to pay your credit card debt and have reliable income and consistent expenses, then you should consider a home equity loan or line. Its never the right choice to put your home up against debts, unless you are truly financially sound enough to pay the loan off. You will also be able to get a lower interest rate on a HELOC then you will on a personal loan.

The key to a debt consolidation loan is that you will take a pile of separate debts and heap them into one loan with one single payment. KEEP IN MIND this only works if you actually use the loan to pay off the debt and DO NOT charge up the debts again. Its is an incredibly common occurrence that someone will take out a debt consolidation loan and then not use it to pay off debts or they charge up their credit cards once again after they have been cleared.

If you feel that you can’t trust yourself to not recreate your debts, then DO NOT get a secured debt consolidation loan. You stand to lose so much more with one of these loans (like your house) then you do if you can no longer pay your credit card bill.

Also, credit card companies offer payment plans for people struggling to meet their monthly payments. Typically, banks will not offer you the same option when you can’t meet your home equity loan payments. For as much banks hate being landlords and taking property, then will not hesitate to seize your house if you can no longer pay your equity loan payments.

So a few questions to keep in mind when you go to consolidate your credit card, personal loan, or medical debts:

• Is it worth the risk to take a loan out against my house?
• Is my income stable?
• Are my monthly expenses increasing, stable, decreasing?
• Can I get an unsecured personal loan to pay my debts?
• Does my creditor have payment plans to help me lower my payments?
• Can I trust myself NOT to charge up my credit card once I pay it off?

Hopefully I have helped make the process of shopping for a debt consolidation loan a little easier.