Can a Home Equity Loan get me out of Debt?

If you are worried about paying your bills from month to month because of credit card debt or another loan that just feels as if it is getting out of control, then do not just pass the debt back and forth from card to card. If you own a home, then there is a way to use the value of your house to help you get out of debt. This method comes in the form of a home equity loan or a home equity line of credit.

What is home equity?
Home equity is the term for the value of your home less the amount of money that you still owe on it. The value of your house is not determined by how much you paid for it, but by the actual appraisal value of the home. This means that increasing home values in your area and payments on your mortgage could make your home equity loan even larger, and remodeling or other home improvements could also help improve the amount of cash that you can get out of a home equity loan.

Home equity loans also have lower interest rates than many other kinds of loans such as personal loans or the APRs for credit cards because the value of the loan is considered secured. This means that there is real collateral (your portion of your house) behind the loan making it a safer bet for the institution offering the loan. If you were to forfeit on the loan, you would forfeit that portion of the home to them, and they could then resell the house to gain back the money that they lost on their dealings with you.

Doesn’t that sound risky?
It may seem like a risk to put your home up as collateral, but your interest rates will be much lower with a home equity loan than with your current debts, and your payments will consequently become more manageable. This is not really any more of a risk than ignoring your credit card and electric bills and risking losing your house when you don’t have enough money to pay the mortgage anymore.

A home equity loan is a great way to get all of your debt paid down and reduced to the home equity loan itself. The important part of this is resisting any temptation to spend any of the extra cash from the loan on anything except debt and paying the loan back. You may have twenty thousand dollars in debt, but qualify for a hundred thousand dollar loan. It may seem very tempting to use some of that extra cash to buy a car or some other luxury, but that really will not help you get out of actual debt. Use what you have to, give the rest back, and focus on making your payments before you choose to spend any more money on luxury items. It might seem hard, but it will pay off in the long run when you are debt free and loving life.