Can I use a home equity loan for debt consolidation?
Q: I’m in high-interest debt from maxing out my credit cards. Is there a way I can consolidate these bills using a home equity loan?
A: Yes! A home equity loan lets you use the equity you’ve built in your home as a source of ready cash for debt consolidation.
With interest rates falling and home prices rising, now is a great time to tap into your home’s equity, or the positive difference between what is owed on a home and its current value.
A home equity loan allows you to borrow a large amount of funds against your home’s equity for any use you desire. If approved, you’ll receive the funds in one lump sum within a few days.
Consolidating debt with a home equity loan
Paying off multiple debts at high interest rates can be cumbersome and difficult to manage. Worse, the heavy interest rates mean more of your money goes toward the lender and less goes toward paying down the principal of the debts.
Using a home equity loan to consolidate debt to a single low-interest loan can slash the interest you pay by several thousand dollars and help shorten repayment time by several years. Rates on home equity loans are generally lower than rates on personal loans and balance transfer cards, making them a much more favorable choice.
Using your home as collateral
A home equity loan can provide you with the funds you need to get debt under control. However, before making either of these moves, it’s important to run the numbers so you are sure you can easily meet the regular loan payments. Otherwise, you risk defaulting on the loan and losing your home.