The Pros and Cons of using your Home’s Equity to Pay off Credit Card Debt
If you have acquired a large amount of credit card debt you may be inclined to use your home’s equity to pay it off. From home equity loans to cash-out refinancing, using home equity to pay off debt is a common practice throughout the country. However, is it right for you?
Say Good-Bye to Credit Card Debt
If you are overwhelmed by credit card debt, or if you are simply tired of looking at high credit card balances, you may want to consider using the equity in your home to pay off these debts. However, many financial analysts warn against doing this, as it could create a number of problems.
In particular, it is important to point out that credit cards are unsecured loans; meaning that the credit card companies cannot take away any of your assets due to nonpayment. A home loan, however, is a secured loan, so if you fail to pay your home loan payment, the bank can foreclose on your home.
The Advantages and Disadvantages of Turning to your Home’s Equity
With that said, it is important to consider whether using the equity in your home to pay off your credit card debts will make your home loan payment difficult to make. If so, then it is probably wise to reconsider your decision to use the equity in your home to pay off your unsecured debt.
However, if you have enough equity in your home, and you can either refinance your home at a lower rate or take out a home equity loan with a low interest rate, you may want to consider the advantages of paying off your higher interest rate unsecured debt.
It is also important to remember that the interest on home equity loans is often tax deductible, thereby providing you with another benefit.
Finally, if you want to avoid racking up more debt on your credit cards once you have paid them off, develop a plan of action for budgeting yourself and spending wisely so you don’t find yourself in the same position as you were before.
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