Using home equity loans for debt consolidation

A lot of U.S families have huge credit card debt. Most of them find it very difficult to juggle with multiple debts and they opt for debt consolidation. Debt consolidation can help you in the following ways:

• You would have the advantage of a single payment every month. This can be a blessing, if you are having a hard time to keep up with several monthly bills.


• You can negotiate late fees and penalties with your creditors in debt consolidation. Also, secured consolidation loans have a low interest rate.


• Consolidation loans are usually long term loans. This means that your monthly payments will be low and affordable. If you are someone with low monthly income, then you would surely benefit from debt consolidation.

However, obtaining a debt consolidation loan may not be an easy job. Most financial institutions are apprehensive about lending to people who are already in debt. In such a situation, the equity in your home can come to your rescue.

A home equity line of credit or HELOC is an easy way to consolidate your debt without fulfilling the eligibility criteria for consolidation loans. If you have sufficient equity in your home, then you can borrow against it. This can act as a consolidation loan. It might be relevant to mention here that home equity is essentially the difference between the current price of your house and the amount you owe on your mortgage loan. For instance, if the value of your home is $100,000 and your mortgage loan is $70,000 then the equity in your house is $30,000.

Why should you consider home equity loans for debt consolidation?

1. Lenders easily approve home equity loans. Very few homeowners are turned down. Even people with bad credit are eligible for home equity loans. This is because the lenders are playing safe with home equity loans. If you default on the loan, then the lenders can take over your property and recover their money.



2. Home equity loans have low rate of interest. This is due to the fact that home equity loans are backed by collateral. On the other hand, you need to pay a much higher rate of interest on credit card debts. On top of that, you are also charged late fees and penalties when you default. Quite clearly, if you consolidate your debts with a home equity loan, you can save on interest.



3. Finally, home equity loans come with tax advantage. It is possible to save up to $100,000 worth of interest payments on tax returns. Some people even turn car loans into HELOC for this reason.

If you are planning to consolidate debts, then home equity loans can be the right choice for you. With easy approval and low installments, it is a safe bet. Using a home equity loan for debt consolidation can definitely pull you out of credit card debt. So use HELOC to your benefit.

Author Bio: This article is contributed by BG, an IAPDA Certified Debt Arbitrator working with Oak View Law Group. Besides, he advices deliberately on debt management program.