Using Home Equity To Pay Off Credit Card Debt
Many people who are deep into credit card debt think of using their home equity to pay off their loans. This can be either good or bad depending on how good you are at managing money. The three main benefits of doing this are:
1. Lowered interest rates.
The interest rate on your home equity account will be three, four, or more percent cheaper than the interest rate on your credit card. This lets you keep more of your money in your pocket.
2. Pay off your loan faster.
Since you have a lower rate of interest,, you will be able to liquidate your debt a lot quicker. For instance, let’s say that the annual interest rate on your credit card is twenty percent and you own $5,000. If you pay the balance off in 12 months, you’ll pay approximately $5,558 total. If, you transfer your debt to your 5% home equity loan, you can pay this debt off in only 11 months.
3. You wind up paying less money.
Taking the identical circumstances as above, with the 20% rate of interest, by year’s end you’ll have paid out $5,558. With the lower home equity interest rate of 5% , however, you’ll end up paying only $5,138 – nearly 9% less. And the bigger the amount of your credit card debt, the more you benefit by transferring your balance.
That doesn’t mean that you should immediately transfer your credit card balances to your equity account. In some cases, this would be a disastrous idea. The important thing is to simply take stock of all the options you have when paying off a debt.
David Hoyer is a freelance writer who writes articles relating to chapter 7 bankruptcy information. For information on chapter 13 bankruptcy, bankruptcy student loans, and bankruptcy on credit report visit his site.