If you are dealing with a large amount of credit card debt, then you may be looking for a quick and easy way to become debt-free. A home equity line of credit (HELOC) can serve as an effective way to pay off the entirety of your credit card debt in one shot.
By tapping into the equity that you have accumulated in your home, you can take out a line of credit and combine and pay off your loans. Here, we will focus on how you can use a HELOC in order to pay off your credit card debt in particular.
What is a home equity line of credit?
A HELOC is a secured form of debt, and serves as a second mortgage. The interest that you pay on the loan is usually fixed, and you will receive the loan in the form of a lump-sum payment.
Furthermore, a HELOC is a revolving form of debt, much like a credit card, albeit interest rates tend to be much lower. Simply borrow the money on a need-to-use basis, pay back the loan amount, and then borrow more money in the future when it is needed.
It should also be noted that a HELOC is secured against the value of the equity that you have accumulated in your property.
How can you use home equity to consolidate credit card debt?
Begin by calculating the total amount of money that you owe. Include your student, credit card, car, and other loans.
You also need to calculate your interest rates, as you must determine if any of the current interest rates that you are paying are lower than the fixed interest rate that is being offered with the proposed HELOC.
You will then need to determine the equity in your home. Going over your mortgage statement will help you know how much is left to pay on your home’s mortgage, and you can go over the appraisal figure of your property as well.
In order to ascertain your home’s equity, you will need to subtract the value of your property from the amount that is left to pay on your mortgage. Next, determine which option is ideal for you.
For some, a home equity loan will work best. Others may prefer a HELOC, while still others may prefer a second mortgage. All three options will allow you to pay off your debts, including your credit card debts. However, the option that you choose must fit within your budget and needs.
The fourth and final step involves paying off your debts. You will be able to pay off your credit card debts upon approval of your HELOC.
Advantages of Paying Off Credit Card Debts With a Home Equity Line of Credit
One of the benefits of using your HELOC to pay off your credit cards is that you can pay them off in one shot. Many people feel excited and relieved after having erased all of their credit card debts at once.
Furthermore, the interest rate tends to be lower. Most people can expect to pay an interest rate of 6% on their HELOC, whereas the typical interest rate on a credit card loan is 17%.
Another benefit of a HELOC is that you will only have a single bill to contend with each month instead of several. Consolidating your debts will make payments easier and more manageable. You will also usually have the option to fix your interest rate.
If you are comfortable with the proposed interest rate, then you may be able to lock it in for the duration of the loan. Speak to your lender to learn more about the terms and conditions of the HELOC, as well as prime rates.
Perhaps best of all, the credit limit of a HELOC tends to be much higher than a credit card, as your HELOC limit may be in the hundred of thousands. As can be seen, using a home equity loan to pay off your credit card debts has a myriad of benefits.
Take Action Today
The amount that you borrow may be tax-deductible depending on what the funds are used for. A HELOC allows you to receive a large amount of cash in the form of a lump sum to quickly eliminate your credit card debts.
You are provided with easy and quick access to available credit, and you are only required to pay interest on the amount that you actually borrow.
It is important to remember that a HELOC is a revolving form of credit, so you are able to borrow as much as you want within your predetermined credit limit, pay off said amount, and then borrow more money in the future.
