Can Home Equity Help With Debt Payments?

Debt can be daunting. If you’ve been struggling to get out of debt, you may consider a home equity loan. Here’s what you should know before you do.

A home equity loan is a loan that is backed by the collateral of equity in your home. All loans have both advantages and disadvantages. We’ve laid out a few here: 

Advantages of Using Home Equity

Lower Interest. When you take out a home equity loan, you’re putting your home up as collateral. Home equity loans typically have a lower interest rate than credit cards. The average home equity loan interest rate is currently around eight percent, while, average credit card interest rate is about 20. Your home equity loan rate is also fixed, while a credit card is variable. 

Low Payments. A low interest rate means a low monthly payment. That could help you deal with the debt faster.

One Payment. If you use a home equity loan to pay off debt, you’ll have one monthly payment instead of multiple payments to worry about. That can streamline the process and make things less stressful.

Disadvantages of Using Home Equity

Home as Collateral. With your home as collateral, there is always the risk that you could lose your house. That’s about as serious a penalty as it gets. Also, if you end up selling your home while you still owe money on the loan, you’ll have to pay the entire balance at once.

Fees. As with other types of loans, home equity loans typically also have fees. Some loans even come with yearly maintenance fees. If you are considering a home equity loan, ask about any applicable fees associated with the loan.

Do One Thing: Consider all methods of dealing with debt before making any decisions.