Debt Consolidation with a
Home Equity Line of Credit

A home Equity line of Credit is one options to help you achieve financial security.  The rates on this type of loan can be much, much lower than you credit card rates.

Home Equity Credit Line - Debt Consolidation Center

Home equity loan of credit is typically issued for a shorter time period than first mortgages. A home equity line of credit (HELOC) works like a credit card. You are permitted to borrow up to a particular amount for the life of the loan, which is generally set by the lender. During that time, you are free to withdraw money as you need it (to pay off credit card debts, for example). As you pay off the principal of the home equity loan of credit, your credit resets and you can use it again for things like debt consolidation. Credit counseling experts use these loans for repaying higher interest debts.

A home equity loan of credit can also be compared to a bank account. However, instead of writing checks based on actual money in your bank account, you write checks based on the equity in your home. Since you can continually borrow against the equity in your home, a home equity line of credit does not have a period in which it must be paid off, which makes it a great tool for debt consolidation. Credit counseling specialists often recommend this option for homeowners.

The home equity line of credit is generally accessed by special checks or a credit card. Your lender will likely require you to take an initial advance when the loan is set up. There may also be a minimum withdrawal amount, as well as a minimum outstanding amount.

What type of Rates?
A Home Equity Line of Credit is a variable-rate loan – thus, your minimum monthly payments won’t amortize the loan. You must be able to make monthly payments above the minimum payments that will pay off the loan over its term. Failure to do so will result in a large “balloon” payment due at the end of the loan.

Other Advantages
A Home Equity Credit Line also provides tax advantages. The interest that you pay on a home equity loan or line of credit is deductible on your primary residence. Interest paid on a normal credit card debt, on the other hand, is not deductible. Considering the difference in interest payments between a Home Equity Line of Credit and the typical credit card PLUS the tax benefits of a HELOC, a HELOC is undoubtedly a smart financial decision.

One thing that you must keep in mind with a Home Equity Credit Line is that your home is the collateral for such a loan. You must maintain the financial discipline to make each monthly payment on time. Obtain a variety of advice from a reliable group.

Line of Credit for Debt Consolidation
Currently, approximately 40% of HELOCs are taken out for debt consolidation purposes. That makes debt consolidation the number one reason for taking out a HELOC. Smart consumers are quickly realizing that it is no longer necessary to maintain payments on credit card debt at 18% interest. A HELOC makes it possible to pay a much lower interest rate – thus paying your debt in a fraction of the time.

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