Advice on Getting a Home Equity Loan to Consolidate Debt
Is it wise to get a home equity loan to consolidate debt?
Is it wise to do a home equity 15 yr loan for $20,000 in credit cards; $15,000 2nd mortgage balance; and $20,000 in home repairs? That would bring everything current, repairs would be completed; interest deductible, and I would keep 1 credit card for emergencies. Thank you.
I am always wary of consumers using home equity loans to pay off credit cards, because you are taking something that is unsecured putting your home up as collateral. Home equity lines or loans are often pitched as a quick and easy way to get out of debt. By leveraging your residence's value, the pitch goes, you can get money to pay off other bills and a tax break, too. But borrowing against your house can backfire. The biggest risk: You could lose your home if you default on the loan, and while equity loan interest generally is tax deductible, it could be limited in some situations.
Still, a home equity line of credit or loan to pay off creditors can work for some debt-burdened homeowners. Just be sure to do your homework to guarantee that the home equity dollars and cents make sense. Using home equity for a debt consolidation can be a good way to reduce interest charges due to favorable interest rates. If you itemized on your taxes, you could also deduct the interest paid on a home equity loan or line of credit. Consult your tax adviser for specific guidance. After consolidating your debt, refrain from incurring more debt and focus on repaying your existing debt.
In your specific case, if you have enough equity, it would make sense to go ahead and get the loan for multiple reasons:
1. You will save on paying high interest for your credit cards.
2. You might get a better rate than your current 2nd mortgage.
3. Money used to repair your home will add to the value of the home.
Think about your options carefully and make sure you have enough savings for tough days. Once you have determined how much credit you need, you should contact various home equity lenders to discuss the loan terms they can offer you. It is important that you speak with at least three or four lenders so you can compare the interest rate and loan terms being offered by different lenders; this should give you a good idea of what interest rate you can expect to pay. I also encourage you to visit the Bills.com Home Equity Line Resources page where you will find a wealth of information and resources for consumers looking to obtain a home equity line.
I hope the information I have provided helps you Find. Learn. Save.