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Using a Home Equity Loan For Debt Consolidation

Allison Beatty
LoanBiz Columnist

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Want to take out a debt consolidation loan? Here's how to use a home equity loan to pay off mounting debt.

Examine Reasons For Wanting Debt Consolidation

If you are having trouble paying your monthly credit card and other bills, then a debt consolidation loan can be a good option. Start the process by making a list of all your monthly obligations, paying special attention to the ones that carry high interest rates.

Home Equity Loan For Debt Consolidation

If you have sufficient equity in your home, the best way to pay off debt is through a home equity loan. This is a second mortgage on your home and typically carries a favorable interest rate. A loan is for a set amount and is paid back with monthly payments over a set period of time. Obviously, you want to use the funds to first pay off the debts that carry the highest interest rates.

Depending on the mortgage lender, you typically can borrow 85 percent of your home's equity. If you have $50,000 in equity, for example, you could borrow as much as $42,500. The money can be used for a variety of expenses, including debt consolidation.

Make Debt Consolidation A One-Time Event

A debt consolidation loan can be a valuable financial tool to help you get back on your feet financially. To avoid continued debt problems, reduce the number of credit cards you have, leaving just one or two for emergencies. Also try to:
  • Start a monthly budget of income and expenses.
  • Pay off bills each month so you don't get into a similar debt cycle.
  • Build up your savings for emergencies.
Source
www.consumercredit.com

About the Author
Allison E. Beatty is a syndicated real estate writer who has been writing home improvement columns for 15 years.

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