November 20, 2017
 
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Tempted to Pay off Credit Card Debt with a Home Equity Loan?

Resist the temptation

There may be some legitimate reasons to borrow on your home’s equity, but taking out a loan against your house to pay off credit card debt isn’t one of them. When you look at the numbers, it may seem like a good idea, especially since a home equity loan is tax deductible, but it isn’t as simple as that. 

Let’s say you have $15,000 in
credit card debt at 15% interest per year. You also have a good amount of equity in your home. You figure that if you take out a home equity loan at a much lower rate, like 6%, to pay off the credit card debt you’ll be much better off. By obtaining a lower interest rate, you would have a savings of about $1500 per year. That is a great way to help with your debt.

The problem is that it doesn’t come without some serious risk. Because
credit card debt is unsecured credit, no one can legally seize anything unless you declare bankruptcy. Not so for secured debt, like a home equity loan. If you cannot pay it off, your house can be taken! You really have to weigh the pros and cons, and the worst is losing your home. It’s a very real possibility that you won’t be able to pay off the home equity loan either, especially if you can’t or won’t cut up your credit cards and get your budget under control. It might be time to seek credit counseling.

To err on the side of caution, it’s wiser to buckle down, stop using the cards, and pay off your debts as opposed to shifting your debt from one place to another, thereby opening yourself up, and your family, to the possibility of losing your home. If you think you can commit to paying off a home equity loan, instead, transfer your motivation to cutting up your cards, pay off the
credit card debt, and keep your house out of harm’s way. This is another way to help with your debt.

Of course, it won’t do any good if you continue to use credit cards and accumulate more debt. If you are ready to get help with your debt go to www.christiancreditcounselors.org and get a free analysis and see how we can help you become debt free.

 

 

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