February 21, 2010
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News: Home Equity; Will It Work For You?
There are several ways to manage credit card debt. Some suggestions have included debt negotiation, balance transfer from a higher interest rate card to a low interest rate introductory offer, and personal negotiations with the lender. There is, however, another alternative that may be of value to some credit cardholders; debt consolidation through a home equity line of credit. Some of the benefits to using your home equity to pay off credit card include:
• You would have one lower monthly payment rather than several credit card payments that add up to twice or three times as much.
• Easier to manage one bill rather than worrying about keeping up with several due dates.
• Reduce the stress of late credit card bills that might initiate higher interest rates and late fees.
• Save dollars on higher interest and penalties.
• Home equity loans typically have a lower interest rate; therefore, you'll save money by paying of your higher interest rate credit cards.
• Save money on annual fees.
• Lower you debt ratio which will in turn raise your credit score.
• Save money paying a debt negotiation or consolidation firm to manage your credit card debt.
• Home equity lines of credit are long term thereby giving you more time to pay debt down at a lower interest rate.
• The interest you pay on a home equity is tax deductible which means you'll pay less in taxes and get a higher return.Although a home equity line of credit is a very appealing solution and will benefit most homeowners in reducing monthly credit card expenses, it has one major downfall. Since the bank issues home equities as a second mortgage, if the homeowner desires to sell the house, the home equity loan must also be paid in full at the time of the sale. Therefore, the sale price of the home must cover both first and second mortgages. If you are not planning a move for some time, a home equity will be a good option; however, if you think you might be selling within a short time period, remember to consider both mortgages when marketing your home.