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Debts can mount up out of control quickly, to the point that you may even be considering bankruptcy. With the new bankruptcy laws making the filing of bankruptcy so much more complicated and expensive, you may be wondering what your options are. For those with good credit and stable income, consolidating revolving debt with 125% home equity loans, also known as 125 percent loans or simply 125 loans, can make sound financial sense. Rather than let your credit card debt spin out of control, consider refinancing that compounding interest into a 125% home equity loan.

125% loans are typically fixed rate equity loans, which save you money over variable rate loans over the long term. The rates are also typically quite a bit less than those of credit cards, especially if you are paying universal default rates. Universal default rates are provisions typically buried deep within the fine print of your credit card agreement where you can get charged exorbitant rates if you are more than 30 days late on any ONE payment to any credit card. These rates can also apply if you go over the credit limit on any ONE card. Consumer Affairs found default rates as high as 35% (Merrick Bank) and many others running close to 30%.

125% loans are second mortgage loans that allow you to borrow more than what your home is worth. E-Loan gives this example of how it works: if your home is worth $100,000 and your first mortgage is $95,000, you can borrow $30,000, for a total of $125,000. Thus, there is no equity needed to get a 125% loan. If you are planning to stay in your home for three years or more, the 125% second mortgage loan is a great way to refinance high rate credit cards, lower monthly payments and save money.

While it generally requires good credit to get a 125% equity loan, there are also loans available for those with bruised credit. With 125% loans, there generally are no lender fees or appraisal required. The purchase price of your house minus all mortgages and liens is generally used to determine how much equity you have. And, because lenders know how busy people are, they generally send a mobile notary to you to sign the loan papers. How convenient is that?

Rather than going through the expense and hassle of bankruptcy, why not pay off all of your credit cards, consumer loans, and other bills and combine those outstanding balances into one low monthly payment called a home equity loan? It will help raise your credit scores, too, because your debt ratio will be lowered significantly. As long as you do not re-incur the debts by using the cards, you will save money and enjoy the piece of mind of lowered interest rates and lower monthly payments.

Debt consolidation, whether it relates to credit card debt consolidation, the consolidation of other bills or loans, or some combination of the three, is a growing trend. The promises that a 125% home loan offers, like no-hassle consolidation, extra cash, and the possibility of lower monthly mortgage payments are all very tempting, But is a 125% home loan right for you?

If you are a homeowner with relatively good credit trying to streamline your finances, the answer may be yes. Here are some facts to consider when making this decision:

1. A 125% home loan allows you to borrow more than your home is worth, as opposed to a traditional mortgage or refinance. According to eloan.com, “if your home is worth $100,000 and your first mortgage is $90,000, you can borrow $30,000, for a total of $125,000 and shrink your monthly payments.”

2. The interest rate that you get with your loan contributes significantly to whether or not you actually end up with lower monthly payments. The ideal scenario would be to obtain a mortgage loan with a fixed or secure interest rate, (APR) Lenders at Capital Resource Finance report an estimated savings of up to three times more with a simple interest, fixed rate loan to pay off your debt versus simply making the minimum payments on your credit cards. This is because the interest on credit cards and other types of credit lines is compounded daily. Compound interest means that for each day your credit card has a balance, you end up paying on the interest, instead of directly toward the balance that you owe. This adds up to more money for the credit card company, not to mention that it will take longer for you to get out of debt.

3. If you are not able to obtain a fixed rate loan because of less than perfect credit or some other reason, you still have options. If you can qualify for an adjustable rate loan, it can still save you money in the long run, since your interest rates may become lower over time, and you will be able to consolidate your bills.

4. Several lending companies offer loan programs for people with no equity. Many lenders offer damaged credit options,but only a few mortgage brokers can help you with sub-prime 2nd mortgages. Also consider the option of obtaining a rate quote or pre-qualification online.

So do your homework: Take the time to find out what all of your options are and review them carefully before deciding, and you will be on your way to being debt free.