Should You Use a Home Equity Loan To Pay Off Credit Card Debt
Published by admin on March 17, 2010
Should You Use a Home Equity Loan To Pay Off Credit Card Debt
As anybody with credit card debt is well aware, credit card companies charge outrageous interest rates. It goes without saying that unless you have borrowed money from a guy who will break your legs if you miss a payment, your credit cards are the highest interest loan you have. This means that it is important that you pay off your credit card debt as fast as you possibly can. The problem is that those same high interest rates make doing that nearly impossible. For most people the best option is to find another loan that has a lower interest rate and use that to pay off your credit card debt.
A home equity loan is usually the best option for paying off credit card debt; this assumes of course that you own a home that you have equity in. Since you are using the equity in your home as security these loans are very easy to get, almost all homeowners will qualify. They will also have the lowest interest rate of any loan that you are likely to be able to get. This is because few people miss payments when their house is on the line, and even if you do the lender will simply repossess your home. This makes it a very low risk loan from the lenders point of view. And that’s good for you since it means a low interest rate, just make sure you can actually make the payments.
A home equity loan will actually reduce the cost of borrowing money even further because of the tax advantages involved. For the majority of people you can deduct the interest on a home equity loan from your income taxes. Although this will vary from person to person the average homeowner will effectively reduce their interest rate by a further twenty five percent through tax savings. You would be hard pressed to find a better loan than a home equity loan.
The danger of using a home equity loan to pay off your credit cards is that it gives people the impression that they have more money than the do. Since your credit card balance is now zero there is a temptation to run out and start using your credit cards again. You need to show restraint, if you run up a whole bunch of new credit card debt you will be in even worse shape than before. Now you not only have credit card debt you also a have a home equity loan to repay, this is a recipe for financial disaster. Once you have paid off your credit cards you need to stop using them.
Loading ...
