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How To Use Your Home’s Equity To Consolidate Debt

If you want to get rid of high-interest debt, the idea of debt consolidation can be all you need. Since home equity loans are available with minimal interest rates and long repayment schedules, these can be a great tool to use.

For those who do not know, a home equity loan is a form of a loan secured by your home. The money you receive from the home equity loan can be applied for several purposes. This can include remodeling or expanding your home, paying off credit card debts or consolidating multiple loans.

In this article, we will talk about how you can use your home equity to consolidate debt. You can also visit this page for more comprehensive information on this topic. 

How To Do It?

The application for a home equity loan for debt consolidation is identical to the application for a mortgage. In either case, you need to offer your employment and income information. You must also sign the closing documents and have your home appraised. As a result, it could take up to nearly 60 days to fully complete the process.

During the closing, you may find that the lender delivers debt payments directly to the other lenders. They may also perform debt consolidation into the latest home equity loan. One of the critical differences between a HELOC (home equity line of credit) and a home equity loan is borrowers obtaining funds and the interest charging procedure. 

Generally, a home equity loan is disbursed to the borrower in a single amount. Also, they have a fixed rate, so the borrowers can commence creating timely monthly repayments. In terms of HELOC, the interest rate may be variable. A draw period may be required to start a loan that lasts for nearly ten years. This is when the borrower is eligible to draw in the line of credit whenever in need. They are also entitled to make interest-only payments in this process. As soon as the draw period is over, it is time for the repayment process to begin. This is when the borrower initiates paying on both the interest and principal for a 20-year term.

Although HELOC has the potential to offer enhanced flexibility, home equity loans may deliver the stability of fixed-rate payments for anyone who knows exactly how much they should borrow. 

What Are Some Other Ways To Consolidate Debt?

If you want to consolidate your debt, home equity is not the only factor to consider. Although home equity can be beneficial among most other options, you must always compare other choices for a better experience. 

  • Debt Management Plans

You can work with a nonprofit credit counseling agency to curate the most suitable strategy for your finances. The agency will make sure to negotiate your rate and the payment amount that is best suited. They will discuss this with the lenders and help you get started with a plan that does not require you to worry about a financial crunch. So all you will need to do is pay one monthly income directly to the counseling agency. Once that is done, they will be responsible for paying your debt off. 

Related Content: How to Get Out of Debt and Win in 5 Simple Steps

  • Personal Loans

Personal loans indeed carry higher interest rates compared to home equity loans. But you must know that they do not accept the weight of your home with them. If an emergency strikes, and you fail to make payments, there is no way you will lose your home via a personal loan. 

  • Balance Transfer Credit Cards

If the majority of your debt occurs via credit cards, you have the potential to transfer your balances to a zero percent APR balance transfer credit card. Although such deals are temporary, they will be able to offer sufficient time so that you can shift your balances and pay them off without worrying about the added interest costs.

However, you must make sure that the new card issuer will approve the entire balance. So in case you face ample amounts of debt, they still require to be paid off via a few old cards with interest. 

How Can You Get Started?

If you feel that the home equity loan is the most suitable option for you, it is best to start by comparing several deals, lenders, rates, and terms. If you cannot get your hands on better terms or minimal interest rates, be patient and continue looking into what other lenders may offer. If you have a clear strategy in mind about attacking high-interest rates and repaying your home equity loan, it will be easier for you to set your finances set up for safety in the long run.

Related Content: Is the Debt Snowball Method the Best Way to Pay Off Debt?

Should You Use A Home Equity Loan To Consolidate Debt?

We know that both home equity lines of credit and home equity loans have minimal interest rates. That is why they are both incredible for homeowners who wish to save sufficient amounts of money by refinancing their high-interest rates. For example, an individual can pay off a 16% APR credit card with just 4% of the APR home equity loan. Also, if you have equity in your home at least 20 %, then both these loans are more suitable for you. Remember that your home equity is a significant asset – the more time you spend on building it correctly, the more likely you are to have sufficient cash via loans and lines of credit. 

The Bottom Line

Home equity for debt consolidation can come in handy because it helps with a streamlined payment, low-interest rate, low monthly payments, and so much more. If you have been considering this, make sure you scroll through this article repeatedly until you can understand precisely what is best for you. We promise it is going to help you for all the right reasons.

Leave a Comment or Answer a Question Below: Have you ever consolidated your debts to make the payments easier? Have you ever worked with a debt counseling agency to pay off your debt? If so, how did that go? 

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