You Can Use Your Home Equity to Consolidate Debt, But Make Sure You Understand the Risks – TIME NextAdvisor

  • March 27, 2021
  • By: Greenpath Financial Wellness
  • GreenPath Financial Wellness is a trusted national nonprofit with more than 60-years of helping people build financial health and resiliency. Our NFCC-certified counselors give you options to manage credit card debt, student loans and homeownership.

Excerpt from Time Next Advisor discusses the pros and cons of using a home equity loan to pay off credit card debt, with insight from Financial Wellness Expert, Jeff Arevalo.

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Sometimes it actually does make sense to put all of your eggs in one basket.

Consolidating your debt can help you streamline your repayment plan — and hopefully save you money in the long run. But when you’re using your home as collateral to secure your existing debt, there are a few more factors to consider — starting with the fact that a failure to repay could end up costing you your house.

How to Consolidate Debt Using Your Home’s Equity

Debt can pile up fast, and you may find yourself facing multiple payments per month on things like your mortgage, credit cards, and student loans.

“Most consumers are dealing with some type of unsecured debt, and COVID has definitely made it more difficult to handle,” says Jeffrey Arevalo, a financial wellness expert at GreenPath Financial Wellness.[/vc_column_text][/vc_column][/vc_row]

LEARN MORE ABOUT DEBT MANAGEMENT PLANS

If you are having trouble paying off your credit card debt and/or other debt, a debt management plan may be a good option.

LEARN HOW THEY WORK

Consolidating your debt means taking out one big loan and using it to pay off your other existing debt. That way, you’ll only have one loan payment to meet every month, ideally with a lower interest rate on that single loan than what you have on your existing other loans.

For example, if your credit card is charging you 16% interest on your lingering credit card debt, and you consolidate that loan into a home equity line of credit with a rate around 4%, then you’re going to save some serious money on interest.

“For someone struggling to pay their debt repayments, not making fast enough progress, paying high interest rates, or they’re just overwhelmed, I would consider debt consolidation,” says Arevalo.

For those who have a decent amount of equity in their home, a home equity loan or home equity line of credit (HELOC) can be good tools to consider — if you can qualify for one. Home equity lending has tightened in the last year, making it more difficult to obtain these loans if you have a lower credit score and less equity in your home.

Continue here to Time Next Advisor to read the interview.

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Understanding your options starts with a conversation. Our financial counselors are available to talk. They can help you figure out a plan to manage a crisis and will walk through your whole financial picture to help you identify options that can relieve stress and make it easier to bounce back.

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Greenpath Financial Wellness

GreenPath Financial Wellness is a trusted national nonprofit with more than 60-years of helping people build financial health and resiliency. Our NFCC-certified counselors give you options to manage credit card debt, student loans and homeownership.