Are Home Equity Loans Good For Bill Consolidation?
Consolidating your debt can make it much easier to finally get a handle on your debt. Part of not being able to pay your bills on time can be attributed to having so many different payments to make. Automatically having your money withdrawn from your account may not be much use to you. Convenience fees can make your payments even higher each month. You also cannot be certain of the date your payment will be credited.
Are Home Equity Loans The Answer?
Home equity loans can be the best way to consolidate your debt. Using the equity in your home provides you with access to cash you already know you have. Home equity loans also come at relatively low interest rates – IF you can qualify. Having the ability to pay your loan off at a low interest rate provides you with much needed relief.
Say your credit card debt comes with an interest rate of 15 percent. You may also have a car loan that charges an interest rate of 6 percent. Your total balance on the loans comes to $30,000. The average interest rate of 10.5% means you are paying over $3,000 in interest payments alone each year.
A home equity loan can be had for lower than 5 percent as long as you have an excellent credit score. Your interest payments on that same $30,000 debt would come to only $1,500 a month. You are saving yourself a significant amount in interest payments each month. So yes, using a home equity loan is something you should consider as a form of debt relief.
But it does not come without risk. If you happen to default on your home equity loan or line of credit you stand to lose your home in the process. That is a very big risk to take on to consolidate credit card debts that you could walk away from if you wanted. That’s not the case with your equity loan.
What About Your Credit Score
Banks may be leery when it comes to financing a second mortgage for borrowers with bad credit. However, you can find lenders who are willing to deal with people who have bad credit. The only downside is that these loans may come with a higher interest rate. Which would negate any potential savings from a consolidation loan.
Having to pay a higher interest rate on your home equity loan may not deliver the type of savings you were hoping for. You may also be paying such a high interest rate on your Visa, MasterCard or department store charge card that paying 8 percent interest will save you money. Taking a look at your current interest rates will help you determine if this is still a viable option for you. Do not forget to factor in appraisal or origination fees which can eat into any potential savings you are counting on.
You can attempt to increase your credit score in the months before applying for a home equity loan to increase your odds of approval. Do your best to pay off even a single credit card balance.
Consider A Better Approach For Consolidating Bills Without A Loan
Having a poor FICO credit score may make it hard to qualify for a standard home equity loan. However, you can try to take other actions to lower your debt to make yourself more attractive to lenders. You can use bill negotiation to lower your debt in one action.
A borrower who owes $30,000 may decide the debt is too much to handle. Most banks may decide that a home equity loan is not an option because you have too much debt right now. You can use a debt negotiation firm who will attempt to slash your unsecured debts in half. You could get a 50% discount on your debts.
You get a reduced balance you can afford and your lenders do not have to write off your account as a bad debt or charge off. This is what makes this form of debt relief a viable option.
Home equity loans may be a great option when looking to consolidate debt – IF you can qualify with an almost perfect FICO credit score. Those with poor credit scores will usually be unable to find a loan that saves them money. Call today to inquire about your home equity loan alternatives. You can consolidate your bills and reduce your debts without a loan.