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Using Home Equity to Pay Off Credit Cards

Pay Off Credit Cards

Use your home equity to pay off credit card debt.

Should you use home equity to pay off credit card debts?

Credit card debt can be difficult to eliminate, particularly for anyone who owns a home and has a mortgage payment to add to the monthly expenses. However, homeowners do have an advantage when it comes to getting out of credit card debt. If there is a considerable amount of equity in the home, the excess funds can be used to pay down the credit cards.

What are the Options?

The equity in your home is the monetary difference between what you owe on the house and what the property is worth. If you owe less than the home’s value, you can borrow against the property in order to pay off your credit card debt. This can be done in two ways. You can either secure a home equity loan or a home equity line of credit. Each option has distinct advantages.

A home equity loan is essentially another mortgage. You borrow a fixed amount of money from the bank, and you use the equity from your property as the collateral. Home equity loans typically have fixed, low interest rates, and they are payable over a specific time period. You may have to pay closing costs if you decide to obtain this type of loan.

A home equity line of credit is a revolving credit account that you can borrow from repeatedly. As long as you don’t exceed the limit of the HELOC, you can draw from the account as often as you need. These types of loans usually have variable interest rates, but there are typically no closing cost fees. You only pay interest on the amount you draw, and the monthly payments are often lower than those with regular home equity loans.

Which Loan is Best?

The type of loan you choose depends on your personal needs and financial situation. If you can commit to a set payment schedule and you prefer a lower interest rate, a home equity loan may be right for you. However, if you want more flexibility and have an unsteady income, you may be better off choosing a HELOC. A financial expert at USA Mortgage can help you determine which course of action to take.

When choosing a home equity line of credit, keep in mind the interest rate can increase with time. It’s a good idea to choose a HELOC that has an affordable cap on the interest rate for the lifetime of the loan. You should also pay attention to the interest you’re currently paying on your credit cards. If the rate is similar to what a lender offers in an equity loan or credit line, it may be wiser to pay down each card one by one.

Regardless of which type of loan you select, a lender may order a new appraisal on your property. This may decrease or even increase the equity in the home. If there is more equity than expected, don’t be tempted to borrow more than you require to pay off your total debts. Discuss the amount you can borrow with a specialist, and take the path that will work best with your monthly finances.

What are the Advantages to Using Home Equity?

In most cases, the interest that gets charged on home equity loans and lines of credit is substantially lower than the rates on many credit cards. Interest is also typically tax deductible. Another benefit to using home equity to pay down credit cards is that your monthly payments may decrease. Paying a single bill rather than three or four is also a major advantage, especially if you become overwhelmed by multiple due dates.

When used shrewdly, the equity in a home can be a valuable asset for escaping the prison of credit card debt. By exercising a new kind of financial responsibility, you can improve your monthly budget significantly. You can break the debt cycle, change your poor spending habits and ultimately increase cash flow as well. USA Mortgage can get you on track with taking charge of your finances so that you can have the fresh start you’re looking for.

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