Equity Loan Possible with Bad Credit?

Equity Loan - Bad Credit

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Question: I need advice on the best way to pay off around $35,000 in credit card debt. The accounts have been closed, and are in the hands of various lawyers and collection agencies. I do own a home, which I owe $80,000. The market value of the home is around $175,000. I am and have been current on my mortgage. My credit score is an abysmal 578, all due to the credit card debt and nonpayment.

With a cosigner with better than average credit, what are my alternatives with drawing money from my home equity? And what route would be the best for me to take, without declaring bankruptcy.

Answer: bankruptcy is one option, although with the new law passed under the Bush administration it is likely to be more difficult to be protected by bankruptcy. Just in case you want to know more about that law you can go here:
http://www.credithelpguide.us/newbankruptcylaw.htm

Some common alternatives to bankruptcy that you may want to consider, given the info you provided, include:

- HELOC (Home Equity Line of Credit) against the equity you've built up in your house. Along the same lines you could get a 2nd mortgage against the house. I'd suggest being very cautious about doing this however, since if you are unable to keep up on the remainder of your 1st mortgage plus the HELOC or 2nd you obtain it can be your house they come after!

- Debt Consolidation is an option. There are companies out there that will provide a debt consolidation loan for you to bring multiple (usually higher APR) credit card debts and consolidate them all under one loan. The question is whether you'll be able to do this via an unsecured loan (that is no collateral - such as your house - used to back the loan) or a secured loan (putting your house, car, etc to back the loan). If you can get an unsecured loan and you fail to make those payments then you can evoke bankruptcy and your house should be safe (hopefully).

- Debt Settlement is another option. I would think you should follow-up on this possibility from what you've described. It may not immediately help your credit report, but can start settling your credit card debt. With this option another firm tends to help you work with the credit cards & collectors to get a decreased payment/interest that you can afford, and at times set-up a payment plan.