Home Equity Loans | How to save money while consolidating debt
A lot of people end up in debt. When that happens, it’s best to figure out a way to fix the problem. Sometimes when there are several debts, the best way out is to consolidate them. The question that arises is whether you can save a few bucks if you use home equity loans while consolidating debts.
The answer is definitely yes. Let us consider how!
- Using home equity loans as collateral serves various purposes. It covers the cost of your home repairs, medical bills, college education and other related charges. It comes along with a security interest that helps in reducing the actual home equity. Thus, you can expect to save a considerable amount of money in the long run if you had a good credit history before.
- The home equity loans are short termed, so it is possible that the rate of interest will be lower. You can also get a deduction on your personal income taxes if you are well informed about the terms and conditions of the loan. Sometimes the loans are termed as recourse loans, where the borrower remains personally liable to the loan. This may be a problem as the handling requires lots of skill and expertise. For that matter, you can get in touch with a debt negotiation or a debt consolidation company who can carry forward the assignment on your behalf.
- The advantage with a home equity loan is that it converts an unsecured debt to secured debt. In case you fail to pay back the borrowed amount, the creditor takes possession of the assets you use as collateral. If the asset is a house, the repayment becomes easy, as the creditor can sell the asset and get the money. If it is something else, then the procedure becomes pretty tough. Moreover you have the option to choose the timing and the amount you would like to borrow. You can avail up to 100 percent of the value of a home. The line of credit can extend up to 30 years or more at a variable interest rate. The minimum monthly payment can be as low as only the interest that is due. Thus, when you pay back, your interest automatically decreases. By making the interest tax deductible, you save money.
- With home equity loans you can select the type of loan that suits you best. Generally, they are of three types: fixed-rate installment, lines of credit, and a combination of the two. Fixed-rate installment loans provide you a specific sum of money at a fixed rate of interest for a specific period of time. But the monthly payment and interest remain the same till you pay back. With lines of credit loan, you have to keep your home as the security, but you can borrow the maximum amount of credit you need and can repay with varied rate of interest. But by far the best is the combination of the two, which allows you to select the amount and fix the interest rate. Thus you can repay as per your convenience and consideration.
- Using a HELOC bank account will enable you to write checks on the equity of your home. This can save you from increasing your debts on your credit cards.
Consider other options
But the fact remains that you have to consider the other options, as well, in case something goes wrong. If the debt you owe is huge, it would be better to negotiate debt settlements with your creditors. The ultimate purpose is to reduce or eliminate your debts and keep from getting into further debt.