Here’s another loan that is a bad idea – the bad credit home equity loan. Not only it is dumb, but you could lose your home because these loans are backed with your home as collateral. These loans appeal to those with bad credit because it looks like an easy way out.
The advertisements for bad credit home equity loans encourage those who cannot get loans elsewhere to come in and get an easy home equity loan. They may even tell you that you can use this money to pay off your existing mortgage, pay bills, or even to use for upcoming holiday needs. Now, seriously, why would you want to get a new loan to pay off the old one? Are you behind on your mortgage? That is not a good reason to get a home equity loan.
Getting a home equity loan on top of an existing mortgage is not a good idea either, unless you have adequate income to pay them both off. The fact that you have bad credit is an indicator that you have had trouble managing money and bills previously. If you are behind with the mortgage, it would be better to talk with your lender on that mortgage and see if they would refinance or allow you extra time to catch up or anything but getting even more debt that you cannot pay.
Using the equity you have built up in your home to pay unsecured bills is another dumb idea. You can let the bills go and not risk your home. If you go and take out a bad credit home equity loan to pay off unsecured bills you are making a very bad deal. Where before you were not risking losing anything, now you could lose your home!
It never hurts to call up your creditors and ask for help if you fall behind. It may keep you out of the bad credit pool also. Many creditors will give you more time, skip a payment options, or even rework your deal to help you catch up. The minute you see that you are falling behind, get busy and find more income, not dumb loans. Using home loans for people with bad credit has put a lot of people at financial risk. Be very careful if you’re considering this option.