The Home Equity Loan Zone

Using the equity in your home as collateral for a loan to pay off unsecured credit card debt may be a good idea. It’ll probably get you a lower interest and some tax benefits.

But home equity loans are not without risk. If you’re unable to control your spending and just max out your cards once again, you could end up losing the roof over your head. So it might be to your benefit to consider other options first.

Actually, if you’re in debt, the best place to start digging out is to stop spending. Financial self-discipline can do wonders if you’re in money trouble. Hide your credit cards for a while and begin paying for purchases only in cash. And, if you can’t afford something, don’t buy it. At least not now.

A second option is to find a credit card with a low “fixed” rate. Make sure it’s not one with a low introductory rate that’s just going to go up in three to six months. Then transfer your other credit card balances to this less costly card.

Another excellent option is to pay off higher interest rate cards first. For example, let’s say you have three cards and only $100 to put towards paying off your debt each month. Make only minimum payments on the lower interest cards and apply the rest of your available cash to the higher interest card. As soon as you pay off that card, repeat the same process with the other two cards. This is one of the most highly recommended ways to get out of debt.

And, finally, if you’re so deep in debt it’ll take you five years or more to pay your way out, a home equity loan may be your best option. Because of lower interest rates and tax benefits, it would most certainly help lower your cost of borrowing.

But be on your toes, because there are a lot of predatory lenders out there willing to promise you anything – low monthly payments, low interest rates, no credit checks, no appraisals, you name it – just to get their hands on your home equity. They’re a major reason why foreclosures are at record highs all across the country.

If you decide to go with the equity loan option, make sure you do your homework first. Read all the ads and check out all your options. Get as many mortgage offers as you can to compare the fine print. And, if you’re hot sure what you’re doing, get some help. Ask a knowledgeable friend or relative you can trust to go over the details of your mortgage before you sign any papers.

Be safe rather than sorry and you can probably pay off your debts, save some money and keep your home – your most valuable asset.