Should homeowners tap equity to pay off costly debt? Weigh these pros and cons
Summary
Using money from your home's value, called home equity, can help pay off expensive debts like credit cards by offering lower interest rates and simpler payments. However, this method involves risks because your home is used as security, meaning you could lose it if you fail to make payments.Key Facts
- Credit card interest rates are high, averaging about 22%, making debt harder to manage.
- Home equity loans and home equity lines of credit (HELOCs) have lower interest rates, around 7% on average.
- Using home equity can save borrowers money over time by reducing interest costs.
- Consolidating debt into one home equity loan simplifies payments and deadlines.
- Home equity loans are secured by your house, so missing payments could lead to foreclosure.
- Credit card debt is unsecured, so defaulting affects credit but doesn’t risk losing your home.
- HELOCs often have variable interest rates, which can rise and increase monthly payments.
- The housing market has boosted home values, giving many owners large amounts of equity to borrow against.
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