Consolidating debt is something that helps a lot with debt management but not many people are using to their advantage. One way to achieve this is by using home equity loans for debt consolidation; question is, is it right for you?
Getting a home equity loan would be a great way to pay off existing debts by borrowing against the equity of your home. Because it can take care of other loans for you, you will end up having to pay only this one loan and nothing else if used properly. That means only one monthly bill to pay plus other advantages such as a better interest rate and a lower monthly minimum.
How to Consolidate Debt with Equity Loan
Most people have a couple of debts in the form of credit card debts, personal loans, car loans, and the like. These debts often come with high-interest rates that can easily inflate the original loan value should you miss one payment; often leading to you having to pay a few times more than the value of your original loan.
By using equity to take out a lump sum of money to pay off your existing debts, you will free yourself from having to pay those high-interest rates plus save yourself the trouble of having to remember to pay off multiple debt bills each month.
That’s right! By using an equity loan (such as a home equity loan), you’ll be consolidating your debts into one loan with a fixed interest rate that is friendlier on your wallet.
Is a Home Equity Loan Right for Your Debt Consolidation?
Take note that using a home equity loan will result to you reducing the equity you have in your home (because you’re borrowing against it). This means that if you’re planning to resell your home soon, you may not make any profit at all and would be lucky to come out not owing anything after the sale.
On the other hand, if you’re planning on staying in your home for quite some time or permanently, using a home equity loan for debt consolidation is a near-perfect solution for your debt-paying needs because you’ll be saving a lot in interest rates as well as making your life a lot easier by reducing monthly expenses and bills to pay.
Be sure that you take your local real estate market’s condition for consideration before you decide on getting a home equity loan. Home values tend to rise and fall with the market’s cyclical trends so getting a loan at the right time can result in a huge advantage. At the same time, borrowing against your equity at the wrong time can result in you owing more than your home is worth a few years down the road.
Should You Go for It?
Yes! But best if you’re going to keep your home for quite some time or if you’re not intending to make a profit by reselling your property. Yes, too if you think that you’d like lower interest rates and having only a single debt bill to pay monthly instead of several. Make sure you borrow when interest rates are at its lowest and when the timing is right!