How to Use a Home Equity Loan to Pay Off Debt

By eHow Personal Finance Editor

Rate: (6 Ratings)

Using a home equity loan to pay off debt is risky because you are trading unsecured debt (credit cards) for secured debt. If you stop making payments on your credit cards, you won't lose your house. But if you stop making payments on your home equity loan, you could lose your home.

Instructions

Difficulty: Moderately Easy

Things You’ll Need:

Step1
Consider this option if you have heavy debt and plenty of equity in your home.
Step2
Contact your bank or mortgage company to determine how much equity-line credit it will give and at what interest rate.
Step3
Determine what monthly payments will be.
Step4
Fill out necessary paperwork if you choose to go in this direction.
Step5
Pay off other creditors with a line of credit from your home equity.
Step6
Begin making one monthly payment to your home equity loan instead of writing several checks a month to different creditors.

Tips & Warnings

  • Your monthly payment will be substantially lower with a home equity loan because you will be paying the loan a lot longer - for as long as 30 years.
  • Avoid using a home equity loan to pay off debt if your equity is slim. Many banks won't allow you to touch the principal in the house unless you have at least 20 percent available to you.
  • Consult with a tax professional or a financial advisor before making this decision.

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Anonymous

Anonymous said

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on 11/22/2005 A credit card takes longer to pay off than ANY mortgage loan because it only charges a monthly payment of 2% of the balance.

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eHow Article:  How to Use a Home Equity Loan to Pay Off Debt

eHow Personal Finance Editor

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