Home Equity Loans To Pay Off Debt | Personal Finance Blogs ...

The majority of Americans carry some sort of credit card debt. Unfortunately, many of us carry so much debt at such high interest rates that it becomes difficult to make a difference in the amount we owe, even when we send a payment to the credit card company each month. Falling behind just makes it worse, with late fees and finance charges added on to your next statement- and often a late payment will result in an increase in your interest rate. High interest rates quickly add up and result in our monthly credit card payments doing little or nothing to reduce the balance. It?s a vicious cycle that can be difficult to get out of.

One effective solution for getting off the credit card rollercoaster if you are currently a homeowner, may be to obtain a home equity loan and use it to pay off your high interest credit card debt. Homeowners often take home equity loans to make home improvements, figuring that the improvements will increase the value of their home and therefore make the loan worth it, but why not take a home equity loan to eliminate high interest debt and make it easier to pay your monthly expenses?

The Benefits of Refinancing Credit Cards with a Home Equity Loan

There are a number of benefits of credit card refinancing, with the most obvious one being the decrease in interest rates you are paying. The other primary benefit is the fact that you aren?t incurring more debt when you pay off your credit cards with a home equity loan ? you?re keeping the amount you owe the same and moving the debt to a more affordable repayment method. If you had previously been struggling to make several individual payments every month, using a home equity loan to pay off your credit cards will result in a consolidation of your debt, making it easier to pay.

Additional benefits of refinancing credit cards with home equity include:

eliminating variable interest rates and getting a fixed interest rate obtain a tax benefit with an interest rate tax write-off on home equity loan interest that could not be done with credit card interest consolidate a number of monthly payments into a single, often lower, payment easier record keeping, write and mail one check a month and make one transaction in the check register rather than multiple.

Disadvantages of Paying Off Credit Cards with Home Equity Loans

Like everything good in the world, there are also some disadvantages to using a home equity loan to pay off credit cards, that you?ll want to consider, though. For example, once you pay off the credit cards, you suddenly have lots of room on them to charge new purchases! This can be extremely tempting, and if you?re not disciplined, you could end up charging more debt and making your situation even worse (because now you have the home equity loan PLUS the additional high interest credit card debt!)

It?s a good idea to either get rid of the credit cards by cutting them up, or by placing them in a fire safe box in your home so that you aren?t tempted to pull them out of your wallet when you?re out shopping. Refinancing the credit card debt with a home equity loan can give you the opportunity to live credit card-debt free. Most financial advisors do not recommend calling to physically cancel the accounts right away, because reducing the amount of ?available credit? will often have a negative impact on your credit score.

About the author: This article is courtesy of CreditorWeb.com, where you can compare business credit card offers and apply for credit cards online.

Source: http://www.isnare.com/?aid=262755&ca=Finances

Frequently Asked Questions

  1. QUESTION:
    Is it better to us a Consoladation company or to use a home equity loan to pay off debt?
    I am in a little over ,000 credit card debt. I am trying to figure out if it would be better for me to use a consolidation company or to get a home equity loan.

    • ANSWER:
      A home equity loan is the way to go. Get low interest, make sure it is FIXED interests then borrow against your home and pray you can pay the ,000 wackeroo off .

  2. QUESTION:
    When IS consolidating a good idea? Or is it better it get a home equity loan to pay-off your debt?
    The thing is, I have good credit and I can currently afford my bills. It just I got married 2 yrs. ago and already had this debt built up i would like to clear my slate?and besides that I owe a lot..btn Credit Cards and Student Loans..woooooo

    • ANSWER:
      Consolidating your debt nor taking a home equity loan clears your slate. You?re not eliminating the debt. You?re moving the debt.

      Get on a written budget and attack these bills on your own.

      ?Myth: Debt consolidation saves interest, and you have one smaller payment.

      Truth: Debt consolidation is dangerous because you treat only the symptom.

      Debt consolidation is nothing more than a ?con? because you think you?ve done something about the debt problem. The debt is still there, as are the habits that caused it ? you just moved it! You can?t borrow your way out of debt. You can?t get out of a hole by digging out the bottom. True debt help is not quick or easy.

      Larry Burkett, noted financial author, says debt is not the problem; it is the symptom. I feel debt is the symptom of overspending and undersaving. Our certified counselors will not recommend debt consolidation for a client. Why? Because debt consolidation doesn?t work.

      Debt Consolidation Statistics
      A friend of mine works for a debt consolidation firm whose internal statistics estimate that 78% of the time, after someone consolidates his credit card debt, the debt grows back. Why? He still doesn?t have a game plan to either pay cash or not buy at all. He also hasn?t saved for ?unexpected events? which will also become debt.

      Debt consolidation seems appealing because there is a lower interest rate on some of the debt and a lower payment. However, in almost every case we review, we find that the lower payment exists not because the rate is actually lower but because the term is extended. If you stay in debt longer, you get a lower payment, BUT if you stay in debt longer, you pay the lender more, which is why they are in the debt consolidation business.

      Debt Consolidation Example
      For example, let?s say you have ,000 in unsecured debt, including a 2-year loan for ,000 at 12%, and a 4-year loan for ,000 at 10%. Your monthly payment on the ,000 loan is 7 and 3 on the ,000 loan, for a total payment of ,100 per month. The debt consolidation company tells you they have been able to lower your payment to 0 per month and your interest rate to 9% by negotiating with your creditors and rolling the loans together into one. Sounds great, doesn?t it? Who wouldn?t want to pay 0 less per month in payments?

      But they don?t tell you that it will now take you 6 years to pay off the loan. This may not sound that bad to you at first unless you realize how much more you will actually pay in additional payments. You will now pay ,080 to pay off the new loan vs. ,392 for the original loans, even with the lower interest rate of 9%. This means you paid ,688 more for the ?lower payment?. Not such a good deal after all. This example shows you why they are in the business ? because they make money off of you.?

  3. QUESTION:
    Is it smart to use a home equity loan to pay off car loans, and a line of credit?
    My husband and I need to lower our monthly payments. We have no debt except a line of credit for ,000 with the payment of 0 and two car loans both adding up to about ,000 and the combined payment of 50/mo. So, we are spending about 00/month for these 3 things. If we got a loan for 0,000 and payed all these off, our payment at 6.6% would be around 0/month. Of course I would always pay more than that per month which would go to principle. Why isn?t this a good thing to do? I realize that getting a new car would add to our payments once again. So, that would not be smart. Other than that, is this a smart thing to do? It seems like it is, but then why don?t more people do this?

    • ANSWER:
      In theory it sounds good. But here?s what happens. You borrow the 100 grand and now you have financed your two old cars for 15,20 or 30 years. If that isn?t bad enough statistics show that you will have more car loans, credit cards, etc. PLUS the 100 grand loan in 5 years. You cannot ?borrow? yourself to prosperity. Pay off your obligations without refinancing and you will be proud of your actions.

  4. QUESTION:
    How can i get a home equity loan or line of credit to pay off debt,i have delinquent payments on some accounts
    I was recently divorced, my daughter is in college. I fell behind on some payments on my credit cards in an effort to support my daughters educational needs. I have two homes with approx. ,000.00 worth of equity. I requested from a local bank where i already have a note to borrow approx. ,000.00 to pay off all cards and other debts. The banking institution refused my request, stating that i have some delinquent payment issues, on cards, etc. He stated since i have a note with them the only thing he can do, is re-adjust my payments on that particular note i have with them. I am new at this type thing, could someone please give me some advice? I am just trying to bail myself out of the hold that i am in, to make a life better for my daughter. Both homes have a lien on them with the bank.

    • ANSWER:
      Poor credit, add liens on home?s (which takes away from equity) high credit card debt, and income unknown. From the little gathered here it sounds like you are already over your head, especially in income to credit ratio. Add to all this the credit crunch that is rapidly approaching, and the glut of homes on the market leading to, or shortly will be the depreciation of those homes, not likely will you get a loan with any terms that are doable. Place one of the homes on the market and hope for the best. Place the one with the most equity so you can get rid of the liens. Do not keep digging yourself deeper and deeper in a debt you may end up losing everything. Not what you want to hear and most likely will go with one of the many scammer?s that propagate these boards. So will wait for the question in months to come asking I am being forclosed on two homes what should I do?

  5. QUESTION:
    How can i get a home equity loan or line of credit to pay off debt,everyone is looking at my credit issues.?
    I was recently divorced, my daughter is in college. I fell behind on some payments on my credit cards in an effort to support my daughters educational needs. I have two homes with approx. ,000.00 worth of equity. I requested from a local bank where i already have a note to borrow approx. ,000.00 to pay off all cards and other debts. The banking institution refused my request, stating that i have some delinquent payment issues, on cards, etc. He stated since i have a note with them the only thing he can do, is re-adjust my payments on that particular note i have with them. I am new at this type thing, could someone please give me some advice? I am just trying to bail myself out of the hold that i am in, to make a life better for my daughter.

    • ANSWER:
      You can get a line of credit without any collateral. Check out BOA website. There is no annual fee, application fee or pre-payment penalty. You can also request a payment term and amount that fits your budget. However, you may have to pay a high rate. This calls Gold Option.

Source: http://mysurefinance.com/home-equity-loans-to-pay-off-debt/

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