With interest rates at all time lows, it might make sense to consolidate some of your credit card debt or unsecured lines of credit into a new consolidated loan. However, it is important to make sure that you understand the consequences of taking out certain types of debt consolidation loans. For example, a home equity line of credit can be extremely dangerous.
When you take out a home equity line of credit to pay off your unsecured bills, it may sound like a good way to reduce the interest rates you are being charged on your credit card bills. However, if you take out a home equity line of credit, then you have just put yourself into a position where if you become unable to pay off that HELOC for any reason…loss of job, reduction in income, death, or divorce then you will find yourself without a home after the foreclosure.
While a debt consolidation plan might work, a Chapter 7 bankruptcy would eliminate your unsecured debt and a Chapter 13 bankruptcy would eliminate all interest on the unsecured debt, if not discharge all or most of the unsecured debt.