Using Home Equity To Pay Off Credit Card Debt
Many people who are deep into credit card debt think of using their home equity to pay off their loans. This can be either good or bad depending on how good you are at managing money. The three main benefits of doing this are:
1. Reduced rates of interest.
Your home equity account interest rate will probably be at least 4 or more percent less than your credit card interest rate. This lets you keep more of your money in your pocket.
2. Pay off your loan in a shorter time period.
Since you have a lower rate of interest,, you will be able to liquidate your debt a lot quicker. For instance, assume that your credit card annual interest rate is 20% and your balance is $5,000. If you pay the balance off in 12 months, you’ll pay approximately $5,558 total. If, you transfer your debt to your 5% home equity loan, you can pay this debt off in only 11 months.
3. You end up with more money in your pocket.
Using the same scenario as above, with the credit card interest rate, you’ll pay $5,558. but with the lower home equity rate, you’ll only pay $5,138, nearly 9% less. And the bigger the amount of your credit card debt, the more you benefit by transferring your balance.
That doesn’t mean that you should immediately transfer your credit card balances to your equity account. In some cases, this would be a disastrous idea. The important thing is to simply take stock of all the options you have when paying off a debt.
David Hoyer is a freelance writer who writes articles relating to bankruptcy student loans and other bankruptcy related issues, visit his site.