Having a lot of loans can be a pain to keep tab of when it comes to making sure that you’re paying them off before each of their monthly due dates; not to mention that each loan will have dizzying interest rates that will keep on eating on your finances if the loans are not paid off as soon as possible. This is why consolidating debt is an attractive aspect of debt management.
Managing your finances will be a lot easier when your debts are consolidated. Doing so will mean that you will have fewer things to mind when it comes to bills.
The thing is, consolidating debts usually means taking out another loan, using the funds from that to pay off your other debts, and ending up with just one debt to mind. Sounds easy but can be a bigger problem if you take the wrong kind of loan. You better do your research and know which type of loan is the most advantageous for your financial situation.
Home Equity Loan to help You Consolidate Debts
Taking a home equity loan can be a great solution for managing your debts. It is a type of mortgage loan that uses your home’s equity as collateral. The amount that you can borrow from this loan is determined by a percentage of your home’s equity and the terms of the mortgage company or private lender that will be providing you with the loan.
Because a home equity loan is a type of mortgage, the interest rates will be far better than other types of loans that you can get from a bank or other lenders such as a credit card, a personal loan, or an unsecured debt.
Will It Be Smart to Use a Home Equity Loan to Consolidate Debt?
As long as you can pay off the minimum payments set by the lender, you’re not in a hurry to sell your home anytime soon, and you’ve got considerable debts with huge interest rates that will benefit greatly from being converted into just one loan, then the answer is yes.
Think about it, if the interest rates of your existing loans are so expensive that you’re often simply paying for the interest each billing period, you’re basically throwing money away and will end up paying a total of twice or more the value of your original loan by the time you pay it off. That couldn’t be good. If you use a home equity loan to pay off your current loans, you will still pay some interest, of course, but it will be nowhere near what you are currently paying now.
There is one thing you have to be really sure of before getting a home equity loan. You have to be sure that the terms you agree to will give you a monthly bill that you can afford to pay. Note that failing to pay the minimum amount on time could mean losing your home to the lender. If used correctly, though, a home equity loan can improve your financial position significantly.