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By
Carrie Reeder
If you`ve got a wallet full of credit cards, and monthly payments on them that
total more than 25% of your monthly income, chances are that you`ve
considered debt consolidation loans or some other means of taming your credit
card debt. But did you know that a home equity loan is another way to get the
money that you need to pay off your creditors, reduce your monthly payments,
and get out from under the weight of all those monthly payments?
A home equity loan is essentially a second mortgage taken out with your house
as the collateral. Because the loan is secured, you`ll have a much more
favorable interest rate. And those lower rates will translate to a lower
monthly payment overall. You`ll wind up with one creditor, one monthly
payment, and more money in your pocket each month.
There are some definite advantages to taking out a home equity loan or line of
credit to get out of debt, and one very big danger. By trading your unsecured
loans (your credit card debts) for a secured loan, you are putting your house
on the line. Why? Because if you don`t make the payments, the lender has the
right to take your home from you and sell it in order to collect on the loan.
But if you`ve got at least 20% equity in your house, and are certain that
you`ll be able to meet the monthly payments, then taking out a home equity
loan to pay off your debts may be a good choice for you.
Once you`ve decided that a home equity loan is an acceptable risk for you,
you`ll have a few other decisions to make.
All home equity loans are not created equal! There are two types of loans, and
you`ll need to decide which one is right for you.
A flat home equity loan is a standard loan for a fixed amount. The amount will
be limited by the amount of equity you`ve invested in your house. If you use
up the entire amount of your loan and need more money, you`ll have to apply
for another loan.
A home equity line-of-credit is usually the better choice. With this type of
loan, you will be able to write `checks` against the amount of the line-of-
credit, which may be as much as 125% of the value of your home. For example,
if you obtain a $10,000 line of credit secured by the equity in your home,
and use $2,000 of it to pay off an outstanding credit card balance, you`ve
essentially only borrowed $2,000, and that`s the amount on which you`ll pay
interest.
When looking for your loan, it`s essential that you shop around--not only for
the best interest rates and terms, but for a company that you can trust. Ask
for referrals from your bank, friends and coworkers. In addition, you can
check them out on the Internet.
You will need to determine the value of your home so will know how much money
you will able to borrow against it. It`s a good idea to get a current
appraisal of your home, and always smart to have it appraised by several
different companies.
Finally, in order for you to get the most out of your home equity loan, you
will need to choose the lender that offers you the best interest rates.
Remember that fees and other charges can vary widely from company to company,
so make sure you do some comparisons.
Once you`ve been approved, you can use all or part of your home equity loan to
pay off your current unsecured debt. Keep in mind that you`ll only STAY out
of debt if you avoid the temptation to run those credit card balances up again!
To see a list of recommended home equity loan companies online, visit this
page: http://www.abcloanguide.com/homeequityloan.shtml (HREFhttp://www.
abcloanguide.com/homeequityloan.shtml) - Carrie Reeder is the owner of ABC
Loan Guide, an informational website with articles and more about various
types of loans.
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