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Consolidating Debt Using Home Equity
Consolidating debt using home equity
Using Cash-Out refinance
Using home equity loan
Using Home Equity Line of Credit (HELOC)
Consider getting a HELOC with your home loan
Should You Get a HELOC?


Consolidating debt using home equity
For many people with high-interest credit card debt, it makes very good financial sense to consolidate that debt using your home equity . When you consolidate debt, you're using your home equity to pay off the higher-interest creditors while "rolling" that debt into your mortgage. When you do this, you're not reducing the amount of your debt. Instead, you're lowering the interest rate on your debt, which makes it easier to pay off. Why consolidate debt using your home equity? Here are the top 3 reasons:

  • You're paying a lower interest rate with a home loan than you would on a credit card, making it easier to pay off your debts.

  • The interest on your mortgage is usually tax-deductible* whereas the interest on a credit card isn't.

  • When you consolidate your debt, you only have to make one monthly payment as opposed to several. By having one lower monthly payment, you could be paying less each month than you would have if you hadn't consolidated. Calculate the advantages of using a home equity loan to consolidate debt.

With a cash-out refinance, you're refinancing your existing mortgage loan amount to a new loan amount greater than what you owed on the old mortgage and taking the difference in cash. For instance, let's say you have $10,000 in credit card debt. Your existing mortgage balance is $100,000. You could refinance your old mortgage to a new loan amount of $110,000. In essence, you are adding $10,000 to your mortgage balance which you will use to pay off your credit card debt.

A home equity line of credit (HELOC) works very similar to a credit card except that it uses your home equity as the revolving line of credit. Instead of receiving your money in one lump sum, you draw from your account only when you need to and make payments only when you use the money. You can close on our home equity line of credit in as little as ten days. Quickerlend offers home equity lines of credit for up to $500,000.

Remember, when you consolidate your debt, be very careful not to run up the balances on your credit cards again. Consider cutting them up and keeping one for emergencies only. And if you increase your monthly cash flow by consolidating, you should consider saving more money, investing it or using it to pay down your debt faster.

Credit cards can be a good thing, but a home equity credit line is a better way to use your home equity to finance big ticket items home improvements, paying off high-interest debt, financing a car, or paying for college tuition. A credit card is a revolving line of credit that you use when you need it, and make payments only if you use it. But credit cards can charge very high interest rates.

Like a credit card, a home equity line of credit (HELOC) is also a revolving line of credit. You draw from it again and again as you need and make payments only if you use it. But, unlike most credit cards, you get a much lower interest rate with a home equity line of credit. Using a home equity line of credit is a way of turning "bad debt" into "good debt". In other words, the interest on the debt on your high-interest credit card cannot be deducted from your taxes. But the interest on your HELOC is usually tax-deductible.

You can also get some flexibility with home equity loans that you wouldn't get for say, with an auto loan. There are different home equity programs that have an interest-only option. From month to month with an interest-only loan, you choose to pay only the interest for a pre-determined amount of time or pay interest plus as much principal as you want. You can't do that with an auto loan. Most lenders offer home equity lines of credit for up to $100,000. But
Quickerlend offers a line of credit for up to $500,000! This is a great option to have if you're thinking of buying your dream vacation home.

It's fairly easy to get a home equity line of credit that's one of the best things about it! Nowadays, many companies allow you to apply online and close within a very short period of time, typically 7-10 days. There's less paperwork to deal with, the closing costs are less expensive and the process is just as easy as applying for a credit card. If you get a home equity line of credit at the same time as your first mortgage with the same lender, you only have one closing to go to for both loans.

A home equity line of credit can be thought of not as a mortgage or a loan, but as a smarter way of using your home's equity to finance big-ticket items. Think of it as a low-interest alternative to high-interest credit cards that comes with greater flexibility and tax advantages.

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