Debt consolidation is for you if you are looking for a real and sustained solution. It is a responsible, honorable and effective way to solve your current situation and can assist you in becoming credit worthy. It is not for those looking for a quick fix.

You may be able to lower your cost of credit by consolidating your debt through a second mortgage or a home equity line of credit, and this may be one of the best options available; however, think carefully before taking this on. These loans require your home as collateral. If you can't make the payments-or if the payments are late-you could lose your home.

Many banks today offer these types of loans with no fees or points. These kinds of loans may also provide certain tax advantages that are not available with other kinds of credit.

Understanding Debt

Your debts are either secured or unsecured. Secured debts usually are tied to an asset, like your car for a car loan, or your house for a mortgage. If you stop making payments, the lender can repossess your car or foreclose on your house. Unsecured debts are not tied to any asset. Examples include most credit card debt, bills for medical care, signature loans and debts for other types of services. Debt repayment plans usually cover only your unsecured debt. If your secured debts are not included in the plan, you must continue to make payments to these creditors directly.

When you borrow money to buy a car, the lender generally holds the title to the car until the debt is paid in full. Most automobile financing agreements allow the lender to repossess your car if you stop making payments. No notice is required. If your car is repossessed, you may have to pay the full balance due on the loan, as well as towing and storage costs, to get it back. If not, the lender may sell the car, perhaps for less than what you still owe. You still are responsible for the difference. If you fall behind with your car payments, consider working with the holder of the title of your car to sell it yourself. Pay off the debt to avoid repossession and a negative entry on your credit report.

If you fall behind on your mortgage, contact your lender immediately to avoid foreclosure. Most lenders will work with you if they believe you’re acting in good faith and the situation is temporary. Some lenders may reduce or suspend your payments for a short time. When you resume regular payments, you may have to pay extra toward the past due total. Lenders may agree to change the terms of the mortgage by extending the repayment period to reduce the monthly payments. Ask about any fees charged for these changes, and consider how much they add to the total cost of your loan.

If you and your lender cannot work out a plan, contact a housing counseling agency. Some agencies limit their counseling services to homeowners with FHA mortgages, but many offer free help to any homeowner having trouble making mortgage payments. Call the local office of the Department of Housing and Urban Development (HUD) or the housing authority in your state, city, or county for help in finding a housing counseling agency near you.