Should I consolidate, and how?

You should consider consolidation if you own your own home and are burdened by heavy debt. However, if you have poor credit, it may be a less advisable option.

For those blessed with relatively good credit, a "cash-out" refinancing of your home may be a great option to get your monthly payments under control and further improve your credit. By leveraging the value of your home, you can pay your bills and take advantage of a relatively low, tax-deductible interest rate all at the same time.

For those with shaky credit, the same benefits apply. Consolidation can help you juggle your debt load. But there are a few potential drawbacks you should be mindful of:

You could get even more overextended. In a cash-out refinance, you are refinancing your home for an amount greater than you owe, and then using the extra cash to pay off your extra bills. In borrowing against your home, if you default on your now higher monthly payments, you can fall even further behind and even lose your home.

Do you really want to stretch out your current debt payments over 15-30 years? Even with a relatively low interest rate, the total interest that accumulates over 15-30 years will be quite hefty.

How likely are you to max out your credit cards all over again? If you had a hard time controlling your spending habits the first time around, think carefully about how you're going to behave when your balances are set at zero again. Unfortunately, many people who take out a home equity loan to pay off their debts just end up with a comparable debt burden within one to two years.

If you're seriously considering a "cash-out" refinancing to consolidate your debts, take a good look at yourself and your spending habits. If you're on solid ground managing your debts, a "cash-out" refinancing can be a great way to go.

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