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Why Consolidate Debt with Home Equity?
Debbie WilsonLoanBiz Columnist
If you have high-interest credit card debt, it makes good financial sense to consolidate that debt using your home equity. Doing so allows you to pay off creditors while "rolling" your debt into your mortgage. And while this doesn't actually reduce your debt in the short term, it does allow you to lower your interest rate, which makes paying off your debt easier.
Lower Interest Rate
Most typical credit cards carry high interest rates. And as you accumulate larger and larger balances, paying off that debt becomes less and less likely. What happens instead is that you merely cover the minimum payment while finance charges continue to pile on. With home equity, you're paying a lower interest rate, increasing your chances of consolidating debt and improving your financial situation.Tax Deductions
Credit card interest is typically non-tax-deductible. As such, it is often referred to as "bad" debt. The interest rate on your mortgage; however, is often tax-deductible (check with a financial planner or tax professional) and that can be a good thing, especially when you're trying to consolidate debt.Monthly Payment
Consolidating your debt allows you to make one monthly payment rather than multiple payments to multiple credit card companies. With consolidated debt and lower interest payments, you could be paying a great deal less overall. So look into consolidating your debt and see if it's a good option for you. Once your high-interest debt is paid off, be very careful not to run up the balances on your cards again. With increased cash flow you can save, invest, or keep working on debt consolidation. Financial health takes discipline and smarts--and it's absolutely worth the effort.Sources
www.occ.treas.gov
www.Bankrate.com
About the Author
Debbie Wilson owns and operates a lakeside resort. Her previous experience includes profitability consulting for a national healthcare company. Debbie holds a B.A. in Business Management with a minor in Physical Education.
