Many borrowers think that bankruptcy is a practical option to solve their debt problems. But, the truth is that second mortgage is an affordable and practical alternative to bankruptcy that would help you reduce your debts without going to court.

Why take a second mortgage

When you are faced with multiple debts and you no longer have enough money to pay for them all, and creditors as well as credit collectors are knocking at your doorstep, use your house as a shield. Obtain a second mortgage to consolidate your debts. It is an easy way to pay off debts and you may even get minimal interest and lower monthly fees than all your monthly repayments combined. Though if you default on the second mortgage, the lender can foreclose your property and take it away from you.

Here are the benefits of using second mortgage to pay off your existing debts:

Borrow significant amount of money

If you have a first mortgage–have you built enough equity in your home? Access that equity by getting a second mortgage. You are securing your loan against your mortgaged real estate property. That means, there will be two lenders on the title of your property—the first mortgage lender and your second mortgage lender. The lender may give you up to 80% of your home’s value.

How much can I borrow?

The loan amount depends on the current value of your property minus the balance on your first mortgage. It also takes into consideration your capacity to repay the loan and the strategy you have in mind to make timely payments.

Enjoy lower interest rates

By consolidating your loans you can get lower interest rates than all the interests of your debts combined. Because of its secured nature, second mortgage also comes with lower interest rates.

A lot of consumers carry a huge balance on their credit cards. Some are taking on more debts and making lesser payments each month. So, when interest rates spike up, they get more debts in the process. When you only pay the minimum balance each month, the behavior gets more costly even with 1% interest rate hike.

When you are faced with credit card delinquencies and pressing needs for your daily expenses–you may be tempted to declare bankruptcy.  By consolidating your debt, you are not only reducing the total cost of your debt, but you are also shaving off the pain of not having money. True, you should not touch your credit cards until you have fully paid off your debt consolidation loan—which is this case, your second mortgage. But, if you use the free portion of your loan—meaning, the left over after you paid your debts in full; you can use the money to be in a better financial position.

Improve your credit score.

Bankruptcy may stay on your credit file for three years. It can damage your credit score and may warn potential lenders that you are a high risk borrower. But, if you take out a second mortgage to consolidate your loan, your credit score will improve. Your debts from various credit providers will be paid, your utilization ratio will go down to zero, and you only have one outstanding debt to pay.

Access funds to meet your urgent needs. Having your own home has its perks—one of them is having the ability to access funds whenever you need it using your home equity. By getting a second mortgage, you can pay off your debts and avoid bankruptcy, and at the same time, get enough funds to start all over again.

A lot of people borrow money to pay their debts—while that is not a bad thing, it is useful to get a small portion of the loan and invest it into something profitable. There are reasons why you are in debt—and one of them might be insufficient income. If you are earning less than the monthly repayments for your debts, it is high time to consider starting a new business that could help you earn at least a few hundred dollars each month for your needs. Additional income could help you avoid getting into new debts when you need money for your daily necessities.

A second mortgage is a powerful alternative to bankruptcy. But, you need a new mindset too. If you have lost of debts from credit cards, personal loans, utility bills and other types of loans, you need to be creative with your budget and work harder to stick to your budget. Resist every urge to reuse your credit cards, to avoid getting into more serious trouble. Make sure that you also have a good spending plan in place—because without it, you might find it difficult to stick to your repayment plan.