Using 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. Lower interest rates.

The interest rate on your home equity account will be three, four, or more percent cheaper than the interest rate on your credit card. This lets you keep more of your money in your pocket.

2. Pay off 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 end up with more money in your pocket.

Taking the identical circumstances as above, with the 20% rate of interest, by year’s end you’ll have paid $5,558. but with the lower home equity rate, you’ll only pay $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 bankruptcy student loans and other bankruptcy related issues, visit his site.