A debt consolidation home equity loan can come in handy if you looking for creative ways to gradually say goodbye to your debt, but only if you know what it is and how to use it.
Here is a guide to home equity and how it can help keep the collectors from calling you.
"When a man is in love or in debt,
someone else has the advantage.”
- Bill Balance |
A mortgage on a house is an interesting animal - it doesn't necessarily reflect the value of your home, it merely states the amount you owe on the house. Therefore, the difference would be the available equity in the home.
This means that the available equity in the home is also an asset, which you can use as collateral for a debt consolidation home equity loan.
Beware, however, because if you become delinquent, your lender will confiscate this collateral, or foreclose on your house. This is why home equity loans are typically granted to people with good credit histories - as second mortgages.
A debt consolidation home equity loan is specifically designed to help you better manage your bills - which may include outstanding credit cards, auto loans, personal lines of credit and the like. Using a home equity loan to get control of your finances and improve your credit report, however, can be risky.
Let's first talk about the benefits. A debt consolidation home equity loan is typically paid for over a shorter period than the first mortgage. You cannot borrow beyond your home's equity so there is a set limit that you will need to figure in to your financial plan for debt consolidation.
You can benefit from lower monthly payments and a fixed interest rate that you can properly budget for. A home equity line of credit (or HELOC), on the other hand, is not quite the same. The HELOC is a line of credit that closely resembles how a credit card works, except that it's secured by your home.
Home equity loans are often tax-deductible (check with your accountant to be sure) and are a better choice for debt consolidation than lines of credit.
Whatever route you decide to take in consolidating your debt, the best option in order to get a fixed rate, lower fees and lower monthly payments is the home equity loan.
However, do proceed with caution as there are more than a few scams out there and one debt consolidation home equity loan won't be the same as the next one.
Also remember that your home is what secures the debt and you can be at risk of losing your home if you don't also take steps to curtail your spending in order to pay off all your debt in a pre-determined, structured manner.
"Do not accustom yourself to consider debt only as an inconvenience;
you will find it a calamity."
- Samuel Johnson |
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Debt is NOT your friend. It's not a wonderful "tool" for building wealth. That's a myth.
