If you have copious amounts of debt then your first priority should be how to pay off your debts as soon as possible. You can take out a home equity loan in order to pay off your credit card debts if you wish.
Home equity loans are fairly common and may even help reduce your interest charges. However, there are some caveats that you should be aware of before you decide if a home equity loan is right for you.
Here, we will show you how you can pay off your credit card debt with a home equity loan.
What is a home equity loan?
You can use a home equity loan to pay off your credit card debt as well as other forms of debt that you may have. It allows you to borrow money from the equity that you have accumulated in your property over the years.
As you continue to make monthly mortgage payments, the interest that you are charged on your home by your loan provider will go down. The home equity that you have built will also continue to grow as long as you continue to make timely mortgage payments every month.
Another way to help build equity faster is to increase the real estate value of your home. For example, you can make home improvements or upgrades to your home, such as adding a sauna or a pool, in order to boost the appeal of your home.
Benefits of a Home Equity Line of Credit
A home equity line of credit is not the same as a home equity loan. With a home equity loan, you will receive a lump sum payment from your bank or financial institution.
As for a home equity line of credit, you can actually borrow against a line of credit that is provided on a need-to-use basis.
A home equity line of credit can be modified in order to adhere to your unique borrowing needs, making it a highly adjustable solution to your debt issues.
The interest rates also tend to be quite low. The initial costs and interest rates tend to be lower than credit cards, making a home equity line of credit a superlative option for ongoing projects or even consolidating/combining your debts.
In fact, the interest that you are charged may actually be tax-deductible if you use the funds to improve your home. Both a home equity loan and a home equity line of credit will provide you with access to cash in a convenient and quick manner. With a home equity line of credit, you can draw only as much as you need, asn draw multiple times throughout the month as long as your home equity is enough to support your needs.
The benefits of HELOC can help you pay off your credit card debts or consolidate your debts in order to make debt repayment quicker and more convenient.
Advantages of paying off credit card debt with a home equity loan?
When you use your home equity loan in order to pay off your credit card debts the interest that you are charged will be much lower than what you are charged on your credit cards.
You can also set up a home equity loan in order to receive fixed monthly amounts.
As such, if you need some help with your monthly budgeting, then receiving fixed monthly amounts will allow you to manage your debts and other expenses in an easier and more convenient manner.
In addition, you can build up your credit score by using your home equity loan in order to pay off your credit card debts. As mentioned, the interest that you are charged will be lower, allowing you to pay off your debts that much faster.
A high credit score will allow you to borrow larger amounts in the future. You may be able to qualify for a home mortgage loan later if your credit score is high enough, and the interest that you are charged on said mortgage will also be lower, as you will be seen as a low credit risk.
The main reason to pay off your debts quickly is in order to stop paying interest and save more money in the long run. You will reduce the stress in your life by paying off all of your debts and being debt-free.
Your credit score will improve and you will enjoy peace of mind knowing that your debts will not become insurmountable. In addition to boosting your financial strength and confidence, you will also reduce the number of bills that you will need to pay each month.
By being completely debt-free, you will be able to own the things that you enjoy the most, which may include your car and home.
Home Equity Lines Of Credit: Pros And Cons | Bankrate