It's little surprise that a growing number of homeowners today are struggling to pay their bills.
Unemployment continues to soar.
Wages are stagnant.
And many workers lucky enough to still have jobs are seeing their hours cut.
Many homeowners are looking for solutions.
They should know, though, that there are significant differences between refinancing a mortgage loan and taking out a debt consolidation loan.
Both options can help consumers manage their debt.
But they do so in dramatically different ways.
Homeowners can choose to refinance their existing mortgage loans to pay down their debt.
They do this by taking out what is known as a cash-out refinance loan.
Homeowners may have a home that that is worth $500,000.
If they owe $300,000 on that home, they then have $200,000 worth of equity.
These homeowners can refinance their current mortgage loan for $300,000 and then add a cash-out amount of $100,000.
They can use this money to pay down their debts.
Debt consolidation loans work differently.
Many homeowners today owe money to several creditors.
Debt consolidation replaces these small loans with one large one.
In this way, borrowers can make one payment a month to pay off all their creditors.
These loans, then, don't reduce consumers' debt; they help them better manage it and pay it back.
Both methods of handling debt have their positives and negatives.
But today, a debt consolidation loan may be easier for homeowners to obtain.
That's because housing prices have dropped significantly during the ongoing real estate slump.
Thanks to this, many homeowners don't have enough equity built up to allow them to refinance their mortgage loans.
This is a good time, though, to take out a debt consolidation loan.
Interest rates are at historic lows.
Low interest rates mean that consumers' monthly loan payments will be lower.
Put simply, money is less expensive to borrow today.
Before deciding on either option, homeowners should speak with their financial advisers.
They can help homeowners make the right choice.