Using Your Home Equity for Debt Consolidation: A Natural Debt Management Solution

Debt can often accumulate faster than we can manage it, but using your home equity for debt consolidation is a great option. A home is the largest investment an individual will make; an investment that holds monetary value which can be "tapped" into when considering debt consolidation solutions. It is common for many people to accrue multiple forms of debt such as student loans, car payments, or credit card debt. The goal of consolidating this debt is to make it easier to manage with one payment each month in addition to lowering the amount of interest you will pay overall. This will save you money in the long run.

Benefit of Debt Consolidation Using Home Equity

  • You will likely achieve an overall lower interest rate
  • Lower monthly payments
  • Pay off your debt sooner
  • Streamlined financial management

Home Equity Loans for Debt Consolidation

Home equity loans are similar to a regular mortgage where a lump sum was given and repaid incrementally with a fixed or variable interest rate. With a home equity loan, an individual is approved for a certain amount based on credit score, current value of your home, and total amount already paid into your first mortgage. The attractive feature of this option is the significantly lower interest rate when compared to major credit cards, equating to lower monthly payments. 

Home Equity Lines of Credit to Consolidate Debt

Similar to credit cards, a home equity line of credit allows you to borrow what you need when you need it, based on the approved amount which is dependent on your home equity. Monthly payments will be made at a lower interest rate, similar to the home equity loan, which will also be significantly lower than other credit card interest rates. If you were approved for an amount larger than your total debt needed to be consolidated, you can use this for other expenses that may arise. The main difference between the home equity loan and the home equity line of credit is that you can keep the line of credit for as long as you like, and you have the option to make either the minimum payments or payments beyond this amount. Your payments depend on how much you have used and the interest rate (which is typically variable). With the loan, the lump sum of the amount approved will be given to you all at once and repaid at a fixed rate until the full amount is paid back.
Debt accumulation can happen for many reasons: unexpected expenses, unmanaged budgeting or overspending, or maybe a turn in the job market. Whatever the case may be, using your home equity for debt consolidation could be the solution to this problem and eliminate unneeded stress. There are a variety of options when you are considering debt consolidation using your existing home equity, and it is important to compare and contrast which one might be the best option for you.


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