It is near impossible to get out of debt when you also have bad credit. Unfortunately, debt and bad credit is a common problem faced by a lot of Canadians these days. Some people are paying their bad debt with a home equity loan and it seems to be working so the question is, should you get a home equity loan to help you get out of debt?
Pay Your Debt with a Home Equity Loan
Is it a good idea to get a home equity loan to pay your debt? Yes, if you’re really strapped for cash and your loan is getting uncontrollably bigger because of interest. Note that it may not turn out well if you get a loan that proves to be even more challenging to deal with than your existing debt.
How to use a loan to pay for a debt, then? The smart way is to use a home equity loan for debt consolidation of high-interest debts. Generally speaking, home equity loans tend to have a lower interest rate as compared to other debts such as credit card debt, personal loan, and car loan so it makes sense to use it to help you save on interest. This way, you’ll be going for a long-term solution that will make handling debt a lot easier.
Use Your Money Wisely!
Most homeowners who are in debt do not know that they may not actually be in debt. How so? If you’re a homeowner who’ve built up some home equity, there is a possibility that the value of your assets may be substantially bigger than any debt you may have; hence, you’re not really in debt.
Use your money to work for you. By tapping into your home equity, you are actually tapping into the money you’ve accumulated in your home’s value. You have to be extra careful and know exactly where your money will be going so the first thing you should do is to assess your real financial situation. You can do this by listing all your assets and debts plus getting a credit report. This way, you will know exactly how much money you owe. As for knowing your credit score, this will come in handy when you need to determine what financial solution will work best for handling your bad debt.
Get Out of Debt by Planning Ahead
The last thing you want to do when you have a bad debt is to keep reborrowing in the future. This becomes very difficult to break once this evolves into a cycle. You need to plan effectively how you will use your home equity to pay off your debt. Do your research and weigh out the pros and cons of different home equity loans so you can make an informed decision about which type of home equity loan you should apply for. Don’t forget that aside from paying your bad debt, you also want to fix your credit score the best way you can.
Do you need help fixing your bad credit with a home equity loan? Contact us at Homebase Mortgages! Our staff will be happy to discuss how a home equity loan can fix both your credit score and your bad debt. Call today!