Home equity loans or HELOC are good ways to consolidate debt. However, one must be cautious and make sure not to rapidly build credit card debt, once the consolidation loan has been obtained. Failing to do so, the borrower might be found in a financially uncomfortable situation where his home is being repossessed or even filing for bankruptcy.
Paying Of the High Interest Debt First
Credit card debt is known to have high interest rates. Experts recommend paying off these types of debts first, because they require paying more interest. When liquidating your home equity, be sure to plan exactly how much money you need for paying off the debts, making sure you have included in your calculation the interest of the Home equity loan itself.
Once you have paid of the high interest debts, such as: credit cards and personal loans, you may pay off other debts, like mortgage payments and your home equity loans interest rates.
Proper Budgeting and Money Management Is Essential
What a relief! You have managed to pay off your unsecured debts and are left with mortgage and home equity loan payments. Try not to fall into a bottomless pit by rapidly building your debt again. Experts in the financial market recommend holding 1 maximum 2 credit cards per household.
When applying for the home equity loan try to chose a repayment plan based on your income or on the amount you can put aside making sure to calculate your usual monthly expenses, such as: bills, credit card payments, tuition fees and don’t forget the loan payments.