Frequently Asked Questions

What is equity?

Equity is a term used to describe any amount of your home that is actual value - that is, value that you do not owe money on. For example; if you buy a home for $150,000 and pay the mortgage on that home for 10 years so that the balance on the loan is $115,000, assuming that your home's value has not grown at all, you will have $35,000 equity in your home. That is $35,000 of your $150,000 home that you no longer owe any money for. A home equity loan uses a formula to determine how much of that $35,000 to give you as a loan against that value.

What is FICO?

FICO stands for Fair Isaac Corporation and it was founded in 1963 by an engineer named Bill Fair and his mathematician assistant Earl Isaac as a means of tying together information provided to the credit reporting agencies and come up with a single, representative number that lenders can use to get a 'quick glance' of a person's overall credit health and creditworthiness. There are other credit scoring systems and numbers out there, but FICO is by far the most widely used and referenced by the credit industry in the United States.

Does credit card consolidation hurt my credit score?

No. A debt consolidation will not hurt your credit score because it acts as an even exchange of debt. Paying off $10,000 worth of credit card debt with a $10,000 loan still leaves you with exactly $10,000 worth of debt. However, your new, lower interest rate on that debt, and the fact that the credit card companies will report your debt as 'paid - no balance due' may substantially help your credit and credit score.

How long does debt consolidation take?

That depends on the method of credit card consolidation that you choose. If you choose to consolidate your credit card debt using another credit card then you can probably seek and get approval for your new card in as little as a couple of hours. If you are going to consolidate your credit card debt using a home equity loan or home equity line of credit, then applying and getting approval may take significantly longer (a month or more), but yield greater results, since a secured loan is going to come at a smaller interest rate than an unsecured loan.

How long will it take to pay off my debt?

Again, this depends on the method used to consolidate your debt and, of course, how much debt you have.

Is debt consolidation the same as bankruptcy?

No. Debt consolidation is an actual action intended to help you pay off your debt in a timely manner, while bankruptcy actually seeks to discharge (or eliminate), your debts so that you do not have to pay it at all. While debt consolidation is not likely to have a negative effect on your credit, bankruptcy has as severe an effect on your credit report as anything can have.

Is debt consolidation the same as debt negotiation?

No. Debt consolidation requires that you have the active (if reluctant) participation of your credit card companies to reduce the amount you owe them in order to help you pay off the debt. This is reported negatively on your credit report and will hurt your rating. Debt consolidation on the other hand, does not require the approval of your lenders and does not usually report negatively on your credit report at all.