Debt Consolidation Home Equity Loan

There are many reasons to take out a home equity loan, and one of the most popular is to consolidate debt. For those home owners who are serious about paying off their debts and becoming debt free without having to declare bankruptcy, a debt consolidation home equity loan is a good way to go. You have the potential to pay off debts associated with credit cards, college loans and auto loans within five years.

How much do you Borrow?
When looking at a debt consolidation home equity loan, you need to calculate how much you would need to borrow in order to pay off your debts. This can also include a little extra to cover other potential costs in relation to that debt (like credit counseling). Calculating what you need may be as simple as adding what you owe on all of your credit cards together. Hopefully that amount won’t be more than the amount of home equity that you have.

Saving Money with a Home Equity Loan
When you roll all of your debts into one your monthly payments change. Instead of paying fifty dollars here and fifty dollars there, you may end up paying less with the one payment to the lender. A reduced payment may mean that you can start saving some of your hard earned money for those rainy days.

A Lower Annual Percentage Rate (APR)
This one is a big advantage. Where most credit cards have an average APR of 15%, a home equity loan may only be 5%. This equates to a huge savings. Your monthly payments will go toward paying off the principle of the debt and not the interest which allows you to pay off the debt much sooner. A lower APR can save you thousands of dollars.

Because of the low interest rates that the housing market has right now, 2009/2010 is a good time to consider getting a home equity loan to consolidate your debt. It should be noted that once you get a debt consolidation home equity loan you shouldn’t go back to using those credit cards in excess. It is recommended that you don’t use them at all as once you started, that’s what got you into trouble in the first place. However, if you do need to use your credit again, try to cut up and close your accounts with all but one company. This way you reduce your chances of slipping back into old patterns of falling into debt.