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. This can be either good or bad depending on how good you are at managing money. The three main benefits of doing this are:
1. Lower 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 faster.
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.
Should you always transfer your credit card debt to your home equity account? There’s no hard and fast rule. 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 bankruptcy student loans and other bankruptcy related issues, visit his site.
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