Home Equity Loans for Debt Consolidation – Is This a Good Move?

comparing a house and money on a seesaw scale

Unless you’re particularly fortunate we all get financial problems from time to time. And through various reasons falling into the debt trap can happen to the best of us.

When this happens there are a number of solutions to the problem – debt consolidation is one of them.

So What is This Debt Consolidation?

 girl fed up with multiple billings and pulling her hair

If you owe money to various companies then it’s easy to lose track of what payments are going where. Debt consolidation simply means getting a loan to sort all of these creditors out. This means you end up with one monthly payment instead of several.

It doesn’t work for everyone of course, but used correctly it can provide a great solution to your problem. The fact is, you know what’s going out of your checking account and when!

If you owe money to various companies then it’s easy to lose track of what payments are going where. Debt consolidation simply means getting a loan to sort all of these creditors out.

This means you end up with one monthly payment instead of several. It doesn’t work for everyone of course, but used correctly it can provide a great solution to your problem. The fact is, you know what’s going out of your checking account and when!

Ok But is a Home Equity Loan the Answer?

First of all of course, you must be in the fortunate position of having your own property. If you do, then a home equity loan can solve your problems. As a homeowner you know you have cash in the property which could possibly be accessed at a fairly low rate of interest. Because of the low interest rate you can certainly benefit in terms of consolidating your debts.

Ok But is a Home Equity Loan the Answer?

mascot offering 5% interest rate

Well let’s just say you have a debt on a credit card which carries an interest rate of 15 per cent. You might also have an auto loan standing at six per cent. The total balance of both loans comes to $20,000. If the interest rate average is 10.5 per cent, this would mean you’d be paying $2,000 in interest payments alone every year.

It’s very possible to get a home equity loan for lower than 5 per cent, but only if you have a good credit score. In this case the interest payments on the two loans combined, would go down to less than $1,000 per month. That can make a big difference in anyone’s language. It’s safe to say then; a home equity loan can become a great source of debt relief.

But There’s A Catch!

‘Should you de-fault on the home equity loan or the line of credit provided you could possibly lose your home outright? You must be certain the risks are very limited, and you can manage to make the payments before even considering such a loan.’

What if I Have Bad Credit?

There are some lenders out there who are willing to help individuals with poor credit – the downside is these interest rates will be quite high making debt consolidation a poor move in certain cases. It all depends on the level of debt!

Remember this all boils down to the interest rates involved but in if you plan ahead you could improve your credit score by paying one of the debts off before taking out a home equity loan.

mascot confused where to go

Any Advice?

It’s always possible to lower the amount you owe by negotiating with companies instead of taking out any form of debt consolidation loan. On the other hand you could employ the services of a debt management company who can act positively on your behalf. You might even be able to slash the level of debt by up to a half. Then you could be able to manage the payments much better.

And the Upshot?

The upshot is a home equity loan provides you with an excellent option if you’re looking to consolidate debt. Should you a have a near perfect credit score then you will almost be guaranteed to save money in this way. If you have a poor credit score you’ll probably be unable to find a deal that is beneficial to debt consolidation.