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For those facing significant financial hardship and considering the various options to address one’s debt situation, it is important to understand the differences between a debt consolidation loan and home loan refinancing.

There are pros and cons to each choice of choosing best debt collection agency, and no prohibition against pursuing both; knowing the potential ramifications of each, however, is very important to protecting oneself in the future. As with most things, educating oneself about the details of a financial decision one is considering is highly advisable.

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Natalia Osorio Editor of the “Best Debt Consolidation Services” website — http://www.FreeDebtConsolidationQuotes.net — pointed out;

“…The first thing that is important to know about the differences between a debt consolidation loan and home loan refinancing is that the collateral structure is very different. While the former may be unsecured or secured by a personal guarantee, a home loan refinancing is secured by the collateral of one’s home. What this means is that if you default on the loan, you can lose your home, even in the case of a bankruptcy. Pulling money out of one’s home by refinancing your mortgage and taking out a certain amount of cash to be used for bills or debt reduction may seem appealing, but it can lead to a dangerous situation where one’s home itself is at stake. The refinancing terms should be carefully considered because of what this type of loan uses as collateral…”

The next major consideration is in terms of the fee structures of the two respective types of loans. Where a consolidation loan may be free (if it is a government loan) or have a modest fee associated with it, the closing costs on a refinancing loan can be significant. In most cases, in addition to the new property assessment and legal fees one must pay when doing a home loan refinancing (several hundred dollars to several thousand alone), the fee charged by the mortgage company are hefty: loan origination fees, title search fees and points charged combine to represent up to thousands of dollars. These fees are often rolled into the loan, increasing the principal balance at the time of the refinancing, so they may be overlooked. Additionally, because one’s mortgage payment is a monthly expense that one is accustomed to paying, the cost of the route is very easy to overlook.

In the field of corporate finance, a lot of attention goes to the amount of debt an entity owes. If, for one reason or another, sales drop, and a company is no longer as profitable as it once was, then it may not be able to repay its loans. Such a company suffers the risk of going bankrupt. However, an entity that does not take out loans may be limiting its expansion potential.