The credit crisis of 2008 has lead to the economic collapse of 2009, and there is no doubt that it is now much more difficult to qualify for a debt consolidation loan than it has been at any time in the last ten years.  There are many reasons for this.

First, as real estate values increased between 2000 and 2007 in the United States and Canada, many people were able to qualify for a home equity debt consolidation loan or a  mortgage debt consolidation loan.  Unfortunately as real estate prices have crashed, your house equity has also fallen, making it very difficult to get a debt consolidation mortgage.

Second, your ability to qualify for a debt consolidation loan is based on your income.  If you have been downsized or laid off, your income is lower, so qualifying for a debt consolidation loan is now more difficult.

So, what can you do?

You may need a co-signer to get a loan.  You may need to settle for a lesser loan than what you would otherwise expect.

If you are a senior with substantial equity remaining in your house, you may qualify for a reverse mortgage.

If those options don’t work, you will have to make a personal budget and keep your expenses as low as possible to repay your debts on your own.

During a recesssion, cutting your expenses is critical to avoid bankruptcy, so get started now.

A reverse mortgage is the opposite of a regular mortgage.  In a regular mortgage you borrow money and make payments to the bank each month.  In a reverse mortgage you borrow the money, and don’t make payments!

Sounds good?  There is a catch: Because you are not making any payments, the interest on your mortgage loan continues to increase.  By the time you sell your house and repay the mortgage, it is possible that the amount owing on the mortgage is equal to the value of the house.  For this reason reverse mortgages are only offered to seniors, on the theory that the time they will be living in their house is less than the time a younger person will stay in their home.

If you have debts, you could use a reverse mortgage for debt consolidation.  You take your high interest debts and repay them with a reverse mortgage.  This eliminates your high interest debt, but it also means that when you sell your house there may be no equity left over for your children.

Another option is to simply get a conventional mortgage for debt consolidation purposes.  You borrow the money, repay your other debts, and then simply make a mortgage payment each month.  By doing that your mortgage goes down each month, so you are not continually eroding the equity in your home.  Mortgage loan debt consolidation is a better alternative than a reverse mortgage if you have a monthly income, and can support the monthly payments.

Either way, before you get a reverse mortgage or a conventional mortgage, calculate the cost of each alternative so you know exactly what you will be paying; there should be no surprises with a mortgage of any kind.