125 loans can be a disaster waiting to happen.

(Continued)

125 Loans have so many drawbacks.

First, you are on the hook for this loan and its interest. While some of the interest  may be deducted from your taxes (oh boy, I get to spend 1 dollar to have 28 cents) the portion of interest on the loan above the value of your house is not deductible.

Second, you will be upside down in your house equity for years. You will owe more than your home is worth until the value of the house increases or you pay off enough of the loans to reduce your indebtedness below what the house is worth. At least a period of 5 to 10 years.

This means if you move or are required to sell before  then you will have to pay money at your closing rather than get a check made out to you. You may say that you intend to stay in your home for a very long time and this is not a concern for you.

What Could Happen? 

Of course nothing will happen to upset those plans, will it?  Unfortunately, many things can. Death, a transfer in your job, divorce, or being forced to move before you have any equity in your home, are probably not in your plans but can and do happen.

This is not to say you cannot make this work. If you want to get out of debt this is not an easy way, if you have no discipline. Too many things can can go wrong. But if you can keep from reloading your cards and taking on other debt, a 125 loan can get rid of a slew of payments. It can free up some cash from the retired debt payments. You then can breathe easier and use the extra to pay down your debt. Just be very cautious.