Finances can easily go awry. It could be because you got carried away with your furniture shopping. It could have been a sick family member. It could have been something as innocuous as forgetting your due date. The point is, things can and will happen that could mean financial disaster. Right now, you may be one of the millions of people who have three loans that needed paying yesterday or three credit cards with crippling interest rates. If you find yourself in just such a quandary, what do you about it?

Debt Consolidation

First off, you’d have to find a way to simplify your financial obligations and make payments easier. You should consolidate your debts into a single loan.

To consolidate your debts into one, you will need to borrow money once again so you can pay off all your current debts. Your new lender will make payments to your creditors and you’re going to owe all your debts combined to only one lender. One loan and one lender mean better financial control and management. It’s going to be simpler to write and mail one check rather than several. It’s going to be easier to monitor one account’s rates, due dates and due amounts than to watch several of those every month.

You can do debt consolidation by yourself or you can also obtain the help of a debt consolidation service – it’s your choice. What’s important is to get your debt consolidation right.

You have many options in debt consolidation. You can take out a credit card that has a debt consolidation (balance transfer) offer, transfer your other debts into the credit card account and pay off the credit card according to the terms provided in the card member agreement. You can also take out any of the loans, secured or unsecured, and use the money you get awarded to completely pay off all of your other loans. One of these loans that you can apply towards debt consolidation is the so-called second mortgage loan.

Second Mortgage Loan

Second mortgage loan is a secured loan. It is similar to your first mortgage because you are using the same property to secure a loan. In particular, you’re using your home equity as collateral.

Home equity is the difference between the amount you still owe on your mortgage and the current assessed value of your home. Thus, if you currently owe $150,000 on your mortgage and your home has a current assessed value of $300,000, then your home equity is $150,000. This amount will be used to determine the loan amount you’ll get approved for. Typically, second mortgage loans are granted for around 70-80 percent of the total home equity value, though there are cases (when credit rating is extremely good) that home equity loans for 120% the total home equity value are awarded.

Using Second Mortgage Loan for Debt Consolidation

Second loan mortgages can conceivably give you a larger loan award depending on how much equity you’ve built up in your home. This is quite unlike credit card loans when you are at the mercy of your credit score and payment histories alone. There have been cases when people have applied for balance transfer credit cards and found out, after some debts have already been transferred, that their credit line is not enough to pay off all their debts. In effect, some loans got transferred but real debt consolidation did not take place; the balances just got shifted around but the borrower still has to manage several accounts each month.

Second mortgage loans are good for debt consolidation because they are secured (this loan has collateral). The rates offered are typically lower than your existing unsecured and defaulted loans, though they’re understandably higher than your first mortgage loan’s rates; a second mortgage loan takes second place to a first mortgage loan in cases of default so second mortgage lenders have a greater amount of risk. Nevertheless, since there’s collateral, the rates and terms are better than that of an unsecured debt consolidation loan.

A second mortgage loan, since it is secured by home equity, is a good option for people with bad credit score. If one is conscientious about loan payments, this can be used to rebuild credit standing. Moreover, second loan mortgage interest rate payments are also tax deductible.

Financial Management

Getting approved for a second mortgage loan is just the first step to recovering from indebtedness. After you get awarded your second mortgage loan, do not use the money for any other purpose than what it’s been slated for. Consolidate your existing loans, do not spend your extra money on superfluous things and do not incur any more unnecessary debts. Furthermore, you have to meet your monthly payments without fail. You can only be financially free once more if you practice due diligence and care in managing your finances.