Should I use home equity to pay debt?

Debt causing financial anxiety.png

 

It’s funny how it works with credit cards. You make all these little purchases that don’t seem too bad but somehow, when they are tallied up, they become monstrous in size. It never feels like you’re spending that much.   

So instead of taking on multiple credit card bills, you’re thinking about consolidating your debt into one payment with a home equity line of credit (HELOC). 

There are many advantages to doing this – primarily it simplifies things and usually offers a lower interest rate. 

You need only manage one bill instead of many. You can put 100% of your focus on it and knock it down. Plus, a HELOCs rate can be as much as 3 to 5% lower than credit card interest – maybe even more depending on how much you borrow against your home.

But before you rush into debt consolidation, ask yourself a few questions;

  1. Is your debt manageable or insurmountable? Is it a case of spending a little too much at Christmas time? Or is it debt that has been accumulated over years that you just can’t seem to beat down? If it seems overwhelming, consider calling free financial counseling service BALANCE to get a professional to take an objective look at the debt and help you manage it.
  2. Are you really serious about getting rid of your debt? Be honest with yourself. If you’re not fully committed, a HELOC for debt consolidation will only make things worse. The last thing you want is to have a fixed payment each month while watching your credit card balances begin to grow again. If you can’t say no to the cards for a while, it’s not time to consolidate debt in a HELOC.
  3. Do I really want to secure my debt against my home? Or is that money I know I will need later. If your future plans include home improvements or college debt, you may want to hold on to that home equity. If that is the case, a better solution may be to transfer outstanding debt to a low interest credit card.

Many places will just focus on the pros of debt consolidation using a HELOC. We don’t do that here. As a member owned cooperative, our concern is your well-being. It’s this mentality that makes us different from the big banks. Not sure if debt consolidation is right for you or what is the best way to go about it? Give us a call. We’ll help you sort through the answers to these questions and find the solution that is right for you.

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About Author

Bill Burpeau
Bill Burpeau

Bill Burpeau is a relationship manager at Hanscom FCU. As a Credit Union Certified Financial Counselor, he is an enthusiastic advocate of financial literacy and education. He constantly studies and is up to date with the latest financial management concepts and technology. Bill is a graduate of Texas A&M University with a BBA in Business Management and served in the U.S. Navy as a Supply Officer.

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