Home equity loans are often seen as the light at the end of the tunnel for those in debt, but if you’re not careful, the light will fade away. If you’re considering using your home equity loan as debt consolidation, explore the pros and cons first. Debt consolidation is a major risk, and if you don’t consider all the options, you may end up worse off.
Using a home equity loan or home equity line of credit to pay off debt can be beneficial if the circumstances are right. Leveraging your home’s worth can generate money to pay off debt while also offering a tax break. Short-term home equity loans often have very low rates. If you are planning on paying off your loan quickly, then borrowing against your home may work for you. Bankrate’s Home Equity Calculator can help you decide whether you should borrow against your home.
The largest risk involved in home equity loans is losing your house. If you default on the loan, the bank can take possession of your home. Tax breaks may be limited in some situations as well, a benefit that many home equity borrowers depend on. Before borrowing, figure out how much you actually need. Banks often offer more than what you require, and you don’t have to take the entire amount. Use Bankrate’s Debt Consolidation Calculator to find a debt consolidation plan that best suits your needs.
Managing debt, instead of shifting it around, may be the best solution. Hiring a professional debt manager can be expensive, but it may be cheaper than taking out a home equity loan. Bankrate’s Loan Calculator can help you determine which option is cheaper in the long run.