Using Equity To Pay Credit Card Debt: Smart Move?


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You can borrow against the equity in your property by taking a home equity loan or line of credit. It's important, however, to make sure you weigh the pros and cons to make sure this strategy is right for you. Otherwise you may end up with more debt than you started and with additional risks that you could have avoided.

A Lower Rate

One of the biggest advantages of a home equity loan is that the interest rate will likely be lower than the rate you pay on credit cards. Plus, home equity financing is tax deductible. For many people, these two factors create significant savings. It has been proven that by exchanging credit card debt with home equity debt you can save thousands of dollars on interests over the whole life of the loan.

For some people, however, home equity interest rates may be higher than those for student loans or promotional vehicle loan rates. If you choose to go with a home equity line of credit rather than a loan, you may have an adjustable rate that could increase according to market conditions. Nevertheless the interest rate will always be lower than that of credit cards.

Lack of Discipline

If you have trouble keeping those credit cards in your wallet, you'll most likely have the same problem with a home equity loan, especially if you choose a line of credit. You could be paying for impulse purchases years later. Most home equity loans have to be repaid in 15 years, and since most have very low minimum payments that are just interest plus a tiny amount of principal, you may come up short when the loan has to be paid off.

Risk of Repossession

Don't forget that your home equity loan or line of credit is secured with your home. So, unlike with consumer debt, if you can't make the payment and default on your loan, the lender can take legal action of repossession against your property. These loans come with so advantageous terms because the lender knows that he will recover his money one way or another.

Summing Up

Only if you know that you will change your credit behavior using the equity on your home to pay off your credit card debt makes sense. Otherwise, once your credit card balances are cleared, you’ll start building up more debt and you’ll end up with the same problem that you had, aggravated by the fact that you may loose your property due to your lack of discipline. If you don’t trust yourself and still want to use this method, then just destroy the credit cards and close the accounts so you can be sure you won’t make the same mistakes again

Mary Wise, a professional consultant with twenty years in the financial field, helps people in the process of securing personal loans, mortgage, refinance or consolidation loans and preventing consumers from falling into the hands of fraudulent lenders. At you will find more useful tips and interesting articles on this subject and other financial related topics.


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