Having trouble paying your bills? Getting calls from creditors? Are your accounts being turned over to debt collectors? Are you worried about losing your home or car?

You are not alone. Many people face a financial crisis some time in their lives. But often, it can be overcome. Your financial situation doesn’t have to go from bad to worse. An option is to consolidate or refinance the debt into a mortgage.

Debt consolidation entails taking out one loan to pay off many others. This is often done to secure a lower interest rate, secure a fixed interest rate or for the convenience of paying only one loan.

There are several reasons why you should consider refinancing your existing debt:

· Reduce the interest rate and/or convert from a floating rate to a fixed rate loan

· Reduce the monthly payment by extending the loan maturity

· Convert short term debt to long term debt

· Use the equity you built up in your fixed assets to provide cash

· Consolidate debt

· Get out of debt sooner

You may be able to lower your payments and reduce your cost of credit by consolidating your debt through a second mortgage or a home equity line of credit.

To explain how you can use a second mortgage or home equity line of credit to diminish and control debt, we need to explain the two types of mortgage rates and how they can affect your ability to take out an additional loan or refinance.

There are many types of mortgage loans. The two basic types of loans are the fixed rate mortgage (FRM) and adjustable rate mortgage (ARM).

In a fixed rate mortgage, the interest rate, and hence the monthly payment, remains fixed for the life (or term) of the loan. This term is usually for 10, 15, 20, or 30 years. The only increase you might see in the monthly payments would result from an increase in property taxes or insurance rates (paid using an escrow account, if you’ve opted to use an escrow). But payments for principal and interest will be consistent throughout the life of the loan using an FRM.

In an adjustable rate mortgage, the interest rate is fixed for a period of time, after which it will periodically (annually or monthly) adjust up or down to some market index.

Adjustable rates transfer part of the interest rate risk from the lender to the borrower, and thus are widely used where unpredictable interest rates make fixed rate loans difficult to obtain. Since the risk is transferred, lenders will usually make the initial interest rate of the ARM’s note anywhere from 0.5% to 2% lower than the average 30-year fixed rate. Because these types of loans can have very low interest rates, they have been a popular option for people throughout the past few years when the interest rates have been at such low levels. In most scenarios, the savings from an ARM outweigh its risks, making them an attractive option for people who are planning to keep a mortgage for ten years or less.

Now that we have an understanding of the types of mortgage loans, we can discuss how to refinance your original mortgage to consolidate debt.

The amount one can borrow in refinancing from a second mortgage is determined by how much equity is in your home. Equity can be defined as the difference between how much the home is worth and how much you owe on the mortgage. Therefore, a home equity line of credit (known as a HELOC) is a loan that is taken against the equity in your home. The collateral on the loan is your house and, depending upon where you live, local lending laws will regulate how much you can borrow. One of the most popular uses of a home equity credit line is to consolidate high-interest credit card balances, and pay them off before the penalties, interest payments, and annual fees become an unmanageable burden. By using a home equity line of credit, it’s possible to pay off all credit cards, and replace them with a single, easy to manage loan. Another benefit of the home equity line of credit is that it can be paid off gradually, over a long period of time. A home equity line of credit can free you from debt, and help you improve your credit rating at the same time.

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