Paying Off Your Credit Card Balances With Your Home Equity
Should You Use Your Home Equity To Pay Off Credit Card Debt?
If you owe a lot of money on your credit card, you may be thinking of using your home equity to pay off your loans. Is this a good idea? Sometimes yes. Sometimes No. Here are the 3 primary benefits of doing so:
1. Reduced interest rates.
Your home equity account interest rate will probably be at least 4 or more percent less than your credit card interest rate. This lets you keep more of your money in your pocket.
2. Pay off your loan in a shorter time period.
Since you have a lower rate of interest,, you will be able to liquidate your debt a lot quicker. For instance, assume that your credit card annual interest rate is 20% and your balance is $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 information on chapter 7 bankruptcy. For information on chapter 13 bankruptcy explained, bankruptcy student loans, and bankruptcy credit report visit his site.
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