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"It's better to do nothing with
your money than something
you don't understand."

Suze Orman
If You're a Homeowner, This Might Be Your Solution

If you get a home mortgage debt consolidation refinancing plan (a “refinance”) to help pay off your debt, you probably will have to pay some fees and costs in order to get the mortgage. Most mortgages charge some fees for paperwork, and refinancing is no different. However, many refinancing arrangements also require you to pay some extra fees, called points. Be sure to ask your lender about the mortgage terms, but don’t be paranoid if there are some extra fees.

Refinancing is a way to get a new mortgage on your house. In the process, you'll pay off the old mortgage and wind up with some cash in your hand. There are lots of different types of mortgages, so talk to your mortgage company about the terms of the particular options they offer.

Refinancing, like any mortgage, is really a secured loan that uses your house as collateral. On the one hand, any time you have collateral, it's easier to get a loan and you're likely to get a loan at a good interest rate. The bad part about collateral is that you run the risk of losing the collateral if you default on the mortgage.

Before you make your refinancing deal, talk to your lender about the terms and conditions of the mortgage. What is the interest rate? How many years is the mortgage? What happens if, God forbid, you should miss a payment?

Foreclosure is the legal action that is used for a lender (the company that gave you the mortgage) to take title and possession of the property used as collateral. Foreclosure laws vary by state, but your lender should be quite familiar with them. Find out what they are and how they work.

Foreclosure is usually not in anyone's best interest. Most lenders don't like this option, because they incur legal costs and end up having to re-sell the property, sometimes at fire-sale rates. Most borrowers don't like foreclosures because they lose their homes and end up with damaged credit.

Obviously, you don't want to enter into a refinance if foreclosure appears likely. Work with a certified credit counselor and look through your financial records to see if you can make a refinance work.

Because a refinancing arrangement requires a lot of paperwork, it can take weeks, even months, to finalize the deal and get your money. During that time, you still have to make all of your payments. That means you should start the refinancing process as early as you can and be prepared to wait patiently.

You may need to talk to your creditors and explain what’s going on; perhaps you can negotiate a skipped payment or a lower monthly minimum until the refinancing deal goes through. In some cases, you may be able to work this out yourself with your creditors. In other instances, you may need to ask the mortgage company handling the refinance to talk to your creditors (just to verify that you are indeed working on the loan).

While a refinance is a good option for many people trying to consolidate a large debt, it can sort of "bury" the debt. Although it can be tough to organize and get a refinance, a few months down the road it can feel like you dodged a bullet and can go back to living a "normal" life. If that "normal" life means using credit cards and taking out loans, stop yourself. There is a limit to what you can do with refinancing, and you can't refinance your home every couple of years to manage your debt.

By the way, if you consolidate debts with a 30-year mortgage, that means you're going to take the next 30 years to pay off your debt. If your debt includes clothes, furniture, a computer, and so on, remember that you won't have paid them off completely until 30 years in the future!

Refinancing options can be great to consolidate debt, but be careful. If you treat it casually, you can wind up back in hot water with your creditors or worse! 

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